If this wasn't obviously a clumsy attempt to set the bar for future negotiations, I'd say that the US's ambassador to Israel was actually on Netanyahu's payroll:

Israel and the Palestinians have agreed to negotiate on the issue of Jerusalem, as well as parts of the Dead Sea, US Consul-General Jacob Walles said in an interview published by the Palestinian daily, Al-Ayyam on Thursday. According to the interview, which was cited by Israel Radio, the consul-general said that negotiations would be based on the 1967 borders, with changes to those borders being possible should both sides agree. Walles told the paper that the other core issues, including that of the refugees, were also expected to be discussed. Responding to the report, Opposition chairman Biniyamin Netanyahu said Walles' comments proved the ineptitude of the current government.

It does prove that the current government is inept, but only to the extent that the State Department is running circles around them. If Jerusalem was actually on the table, the silence would be broken only by a string of official denials from every party - exactly to avoid the inevitable backlash from the Israeli public. Since only the Israelis are issuing denials, it's probably just one of those genteel nicities that diplomats use to screw Israel.

That said - State Department officials get very comfortable during interviews with Arab media outlets. They've been known to get so comfortable that they end up boastfully insisting that they harbor anti-Israel opinions. So it's not like this is impossible.

References:
* Walles: Sides agree to negotiate J'lem [JPost]
* Israel: Jerusalem not on negotiating table [YNet]
* US State Department: Lebanon Is Not Responsible for Hezbollah [MR]

Previously:
* State Department Anti-Israel Ideology Gets Silly, Kills Americans
* State Department: How About We Screw Terrorism Victims, Protect Palestinian Terrorists In US Courts? (Plus: One Jerusalem Launches Campaign)
* State Department Spouts Utter Nonsense, Undermines Israeli Self-Defense