Never have the anomalies of Israel's policy toward Jerusalem been more pronounced than in the aftermath of the massacre at Mercaz Harav. The simultaneous attempt to retain control of the city politically, divide it demographically, and keep it whole physically has been stretched beyond its innately contradictory limits. Further attempts to square this circle can only lead to disaster. If Israel really wants to legitimate Jerusalem as its center, it should drastically revise its current course. Now is precisely the time to do everything possible to start rehabilitating the common human, economic, administrative and cultural foundations which may revive the city and transform it, once again, into a vibrant multi-national metropolis which can house two capitals for two states. The artificial municipal boundaries of Jerusalem carved out in the heady days of June 1967, incorporated tens of Palestinian villages previously unattached to the city. East Jerusalem and its environs, however, were never truly joined to Israel. The ring of Jewish neighborhoods and surrounding settlements, constructed in order to secure Israeli preeminence, highlights the ongoing discrepancies between its Jewish and Palestinian segments. In almost every single respect, Jerusalem is divided physically. There is virtually no interaction between its two sides. Checkpoints within the municipal boundaries - most notably at A-Ram and Abu Dis - are a vivid reminder of the concrete barriers that have become its trademark. And, to drive home the point, the internal wall within the city limits not only separates Jerusalem from the West Bank; it also effectively seals Palestinian portions from Israeli ones. The renewed settlement spurt in the urban perimeter - and particularly the tenders released after the attack two weeks ago - merely underlines the extent to which the physical integrity of the city is being compromised under the guise of fortifying its unity. The formal status of Palestinian Jerusalemites has compounded this confusion. After the Israeli annexation of east Jerusalem, they became permanent residents of the country but not citizens of Israel (as if changing their standing would alter their identity). Over the years, Israel has systematically sought to reduce their number within the city limits - preventing family unification, limiting registrations of birth, demanding particularly stringent proof of residency. Nevertheless, the Palestinian population of the city has continued to grow; it now comprises fully 34 percent of its inhabitants. Recently, Israel has sought to reverse this trend by detaching complete neighborhoods from the city. These efforts at exclusion have often produced the opposite results, erecting physical obstacles which can hardly defy human connections. For this reason, suggestions are now being bandied about to replace the blue identity cards of Palestinians in Jerusalem with different-colored documents. This will pave the way to stripping Palestinians of their health and welfare benefits, even though they pay taxes and municipal rates like every Israeli citizen (see The Jerusalem Post editorial, "Residents and Citizens," March 11). THESE AND similar moves are exercises in futility: Israel cannot lay claim to Jerusalem and at the same time dislocate over 250,000 already disenfranchised Palestinian Jerusalemites. Indeed, every single step now being taken by Israel - either in the name of historical rights, security needs, or political expediency - serves to exacerbate the depth of its own policy inconsistencies. It can be otherwise. This is precisely the time to consider turning the conventional wisdom on its head and to launch a series of initiatives designed to rectify some of the inequities that have come to characterize life in Jerusalem today. The long-term interest of anybody who cares about the future of this majestic city demands that a concerted attempt be made to reconstruct its delicate human, cultural and economic fabric. Immediate measures should focus on practical matters. Services in east Jerusalem - starting with street cleaning, garbage collection and road improvement, and extending to investment in education and welfare - should be enhanced substantially. Construction permits must be issued to relieve the extreme housing shortage. Every effort must be made to begin to close the unconscionable gap between the two parts of the city. Economic interactions should be encouraged. Jerusalem will remain poor and unattractive if it does not begin to develop ways of garnering all its human resources to enhance its growth. This involves facilitating the free flow of people and goods to all corners of the city. It also implies dismantling the physical barriers that impede movement and breed animosity. Contact between the diverse sectors of the city should be eased. If, in the past, Jews and Arabs could mingle in shopping malls, sports centers and cultural events, today there are scarcely any opportunities to foster relations not informed by suspicion, acrimony and mistrust. Even the winding alleys of the Old City and the eating places it contains have ceased to serve as foci for casual interchange. The social mosaic of Jerusalem cries out for the reactivation of old meetings points and the creation of additional ones. Jerusalem's history is one of cooperation and coexistence, not only of volatility and strife. Consciously nurturing this heritage can help to reverse current patterns. But this can only be achieved if the acknowledgement of the city's diversity is accompanied by the entrenchment of norms of pluralism and tolerance that can maintain its civility. The underlying rationale for what is happening in Jerusalem, then, remains distinctly political. Time and again, when negotiations gather momentum, the opposition raises the specter of dividing Jerusalem to thwart any progress. And, in fact, without an understanding on the establishment of a Palestinian capital alongside the Israeli one in the city, no resolution of the conflict is possible. Recognition of the imperative of sharing Jerusalem is therefore the key to maintaining its coherence. Jerusalemites - Jews, Muslims and Christians, Palestinians and Israelis - do possess a joint pride of place. Nurturing these sentiments may prepare the groundwork for a different, safe and flourishing existence in the city.