A federal appeals court in Washington has declared unconstitutional the federal law that allowed Americans born in Jerusalem to identify "Israel" as their place of birth on a U.S. passport.

Ruling for the U.S. Justice Department, a unanimous three-judge panel of the U.S. Court of Appeals for the D.C. Circuit said the law impermissibly interferes with the president's authority to recognize foreign sovereigns. The United States does not recognize any country as having control of Jerusalem.

"The controversy continues today as the state of Israel and the Palestinian people both claim sovereignty over the city," Judge Karen LeCraft Henderson wrote in Zivotofsky v. Secretary of State. "It is against this background that the dispute in this case arises."

Henderson wrote: "[W]e are not equipped to second-guess the Executive regarding the foreign policy consequences" of the law.

The law, long on the books, gave Americans born in Jerusalem the option of identifying Israel as their birthplace. The provision did not require the State Department to make such a designation. President George W. Bush signed the law in 2002; in a signing statement at the time, however, Bush questioned whether the law intruded on his foreign-affairs authority. The title of the section of the law that was in dispute: "United States Policy with Respect to Jerusalem as the Capital of Israel."

Joining Henderson were judges David Tatel and Judith Rogers, an ideologically diverse panel. The ruling was the D.C. Circuit's third in the litigation, which began in 2003 in U.S. District Court for the District of Columbia.

The Supreme Court in March 2012 overturned an earlier panel's refusal to consider the merits of the dispute. (The appellate panel in that instance cited the "political question" doctrine, saying that the case presented an issue ill-suited for the judiciary to resolve, and therefore declined to proceed.)

The challengers, led by Nathan Lewin, representing the parents of an American boy born in Jerusalem, argued that the law did not touch the president's authority to recognize foreign sovereigns. Rather, it merely regulated passports, an authority well within the power of Congress.

Lewin, of Washington's Lewin & Lewin, also argued that the State Department suffered no adverse consequences when the agency inadvertently issued passports that identified "Israel" as the place of birth for Jerusalem-born Americans.

"The government acknowledged in discovery that the designation of 'place of birth' in a passport has no intrinsic foreign-policy significance," Lewin wrote in a brief last year. "A citizen's place of birth is recorded in his or her passport only to facilitate identification. It is, like the passport-holder's name, date of birth, and photograph, a means of identifying the individual.

Lewin called the government fear of backlash in the Middle East, if the passport law were enforced, an "overblown allegation" that "exaggerated the impact" of the provision.

The appeals court called the case "difficult" but rejected Lewin's contention that the law didn't implicate the president's authority to recognize foreign sovereigns.

"In fact, it clearly does," Henderson wrote. "Over the years, the Secretary has been incredibly consistent on this point: in no circumstances—including circumstances beyond the Jerusalem issue—can an individual opt for a place-of-birth designation inconsistent with United States recognition policy."

The president, the panel concluded," exclusively holds the power to determine whether to recognize a foreign sovereign."

Gibson, Dunn & Crutcher's Theodore Olson represented members of Congress—six senators and 57 representatives—in the fight as an amicus in support of the challengers.

"It would be strange indeed for Congress to have clear and unambiguous legislative powers over immigration, naturalization and foreign commerce, unless that legislation touches on a disputed territory," Olson wrote in a brief. "Such a rule would, in fact, render Congress impotent in large swaths of its core legislative powers."

Mike Scarcella can be contacted at mscarcella@alm.com.