Congress intruded on the exclusive power of the executive branch when it passed a 2002 law requiring US consular officials to list “Israel” as the place of birth of American children born in Jerusalem, a federal appeals court ruled on Tuesday.

The decision marks a setback for American-citizen parents whose children were born in Jerusalem and who want their child’s newly-issued US passport to reflect that they were born in Israel.

Despite passage of the law, US consular officials have maintained a long-running policy of neutrality on issues touching on the disputed status of Jerusalem. Israel claims a united Jerusalem as its capital, while Palestinians want historically Arab East Jerusalem to be the capital of their future state.

Under the long-held policy, newly issued passports for newborns were to reflect simply that the child was born in “Jerusalem,” with no reference to whether that city is part of Israel, part of Palestine, or some other status.

Tuesday’s decision comes in the case of Ari and Naomi Zivotofsky, who filed suit in 2003 to have their newborn son’s US passport reflect that he was born in “Jerusalem, Israel.”

Lawyers for Mr. and Mrs. Zivotofsky argued that the State Department was ignoring the law as passed by Congress. They said that allowing the passport designation of “Jerusalem, Israel” did not interfere with the president’s power to recognize the sovereignty of foreign nations, and was no different than allowing Americans born in Tel Aviv the choice of designating the place of birth as simply Tel Aviv or Tel Aviv, Israel.

The law did not require that all US citizens born in Jerusalem be listed as having been born in Israel – only those who desired that designation.

Government lawyers countered that the executive branch has exclusive power to decide which countries to recognize and when to do so. That constitutional authority trumps the power of Congress to pass a statute under its authority to regulate passports, they said.

A federal judge in Washington threw the case out, ruling that the issue involved a political question best resolved by the president and Congress. That decision was upheld by the US Circuit Court of Appeals for the District of Columbia.

The case then went to the US Supreme Court. The high court ruled in March 2012 that the underlying issue was not a political question, but a constitutional dispute that the courts are empowered to resolve. The justices sent the case back to the appeals court to tackle the underlying constitutional issue.

The case, Zivotofsky v. Secretary of State, pitted Congress’s broad power to regulate passports and immigration against the president’s authority to conduct diplomacy and decide whether to recognize foreign nations.

In its 42-page decision, the appeals court examined the president’s recognition power from the earliest days of the nation’s history to recent times and concluded that the executive branch wields exclusive power in that area.

The “Jerusalem, Israel” statute passed by Congress amounted to an unconstitutional intrusion into a realm reserved to the president alone, the court said.

“The unconstitutional intrusion results from [the law’s] attempted alteration of United States policy to require the State Department to take an official and intentional action to include ‘Israel’ on the passport of a United States citizen born in Jerusalem,” Circuit Judge Karen LeCraft Henderson wrote for the three-judge panel.

“Congress plainly intended to force the State Department to deviate from its decades-long position of neutrality on what nation or government, if any, is sovereign over Jerusalem,” Judge Henderson said.

“We conclude that [the law] impermissibly intrudes on the President’s recognition power and is therefore unconstitutional,” she said.

In a concurring opinion, Circuit Judge David Tatel acknowledged that the State Department allows residents of cities in Israel to decide whether to designate “Israel” or nothing in tandem with the city-of-birth listed on the passport. But those instances do not implicate the president’s recognition power, he said.

“The [State Department] has consistently walked a careful line, permitting individual choice where possible while still ensuring consistency with foreign policy,” Judge Tatel wrote.

He said Congress could probably pass some laws concerning the place-of-birth section on a passport, such as requiring a particular font or eliminating the birth field altogether. Those areas, he said, would not interfere with the president’s recognition power.

“But in enacting the [Jerusalem, Israel law], Congress did intrude on the recognition power,” he wrote. “The statute seeks to abrogate the [State Department’s] longstanding practice of precluding place-of-birth designations that are inconsistent with US recognition policy.”

Abraham Foxman of the Anti-Defamation League said his group was "deeply disappointed" by the appeals court ruling. The ADL had filed a friend-of-the-court brief in the case supporting the Zivotofskys.

"The court has effectively given a stamp of approval to the offensive State Department policy that singles out Israel for 'special' treatment," he said in a statement.

"We firmly believe that Congress acted within its power when it gave individuals like the Zivotofskys the option to list their son's place of birth as Israel. We hope the Supreme Court will now take up the case and compel the State Department to enforce this sensible law," he said.