Israel will cede land to the Palestinians when they negotiate honestly and fairly with them and give them no indication of pursuing hostility afterward.
Do realize that Israel is very willing to help set up a Palestinian state. They have been since Day 1 essentially, though because of the multitude threats and attempts of annihilation as well as the rampant praising of Israeli deaths by the Palestinian community they do require a few things be hammered out and discussed prior to any such deal. Israel's security concerns are no joke, and something they're entitled to no matter what you think. No one can really fault Israel for not going through with something when they honestly see it backfiring and putting a lot of their citizens in harm.
I think that the world doesn't realize what they often ask Israel to do. There is a naive assumption that a peace deal will automatically result in peace, and no hostilities will ensue. That is not true. The reality is that simply giving the land to the Palestinians will not necessarily end up in a viable peace, or one that will last for a while. One huge concern is that without Israel's presence, Hamas or a group like them will take over the West Bank and drag everyone into another war. There is just so many things that can go wrong and that's why Israel's security is a point they refuse to budge on, and have to discuss in regards to forming a peace treaty.
The refusal of recognizing Jerusalem as Israel's capital is only a formality to keep most of the Muslim world satisfied. So while it's not de jure, Jerusalem IS Israel's de facto capital to everyone. Others do talk about Jerusalem as Israel's capital, because it does function as Israel's whether you like it or not.
As for Ha'aretz: It's English-language edition often shills out to a anti-Israel crowd who think that they're getting a good insight into Israeli society; however, they often fail to accurately portray Israeli interests or beliefs. However, I could not find anywhere that they refer to Tel Aviv as the capital. I DO find an opinion-piece that says they should relocate the capital to somewhere else (entitled "Israel Should Give Up Jerusalem as Its Capital") but that's not the same thing. Mostly, Ha'aretz does refer to Israel's capital infrastructure as being in Jerusalem.
Also: While most nations do not recognize Jerusalem officially, the do the same with Palestine (barring those who don't recognize Israel, of course). Technically Jerusalem has a corpus separatum status, which means that no one was supposed to have it. However, because of the war to annihilate Israel (and its failure to do so), people took parts of it. Another war saw it fall into Israel's hands completely, with Israel fixing the damage the Jordanians did to many places such as the Mount of Olives (which, curiously enough, the Palestinians did NOTHING to stop). Still, Jerusalem is internationally its own thing, and not even Palestine's to begin with.
And the Israeli government is in modern times. It's not practicing apartheid, as a lot of people who actually experienced it and have gone to Israel will tell you. At the very least, they'll recognize that the huge defining factors are absent, with very different conditions. I ACTUALLY KNOW a woman who suffered apartheid and has been to Israel, and she'll kindly let you know that you're wrong. Unless you say Israel's doing a "worse apartheid" - as some people ACTUALLY claim - and then she'll go on and on about how that's simply not true, listing the most horrific things about South Africa's and noting how they're absolutely absent in Israel.