Traditionally, embassies have been in the capital city because their purpose is to facilitate communication with the country's government. Hence, it's logical to be co-located wherever the seat of government is. In this modern age it's not that crucial, thanks to advances in communication and transportation technology. In case of Israel it's a political decision either way.
This is all true, but there's another crucial element.
Jerusalem is not just another old city. It's a Holy site for three competing and militaristic religious groups. Tel Aviv is a better place for secular purposes like government.
I think moving the secular capital to a Holy city was little more than militaristic posturing intended to incite trouble with the Muslims and Palestinians. I admire a great deal about Israel, but the Zionists are quite capable of appalling behavior as well. I'd rather the USA didn't support that.
So, of course, it was our most appalling president.
Tom
The original proposal which the Arabs rejected was that Jerusalem be an independent city.