Actually the architects list it as being in Israel, not PA territory.
Current Embassy in Tel Aviv
It is about time. Regardless of any two state solution, Jerusalem is the capital of Israel and that is where you typically place the embassy. If the Palestinians decide to make peace and recognize Israel, they can have their capital in East Jerusalem, and we can open up another embassy.
Update: The Palestinian Authority threatens to withdraw its recognition of Israel if the USA moves the embassy to Jerusalem. NBC News frames that as Trump over turning peace efforts in Israel. What peace efforts? You mean John Kerry's failed attempt to buffalo the Israelis? The PA is not going to agree to any two state solution that is viable for Israel--they openly want to destroy Israel, either outright as Hamas wants or demographically as the PA proposes.
Trump Administration signaling it is pushing for direct negotiations between Israel and the Palestinians before moving embassy.
Instapundit: Obama's arrogance hurt relation with Israel and peace process
Right Scoop: Obama stabs Israel in back again (right before inaugural)