THE location of the United States Embassy to Israel has become one of the hottest issues in the current American political campaign. Israel insists that it ought to be located in Jerusalem. Israel's supporters in Congress are pushing a resolution calling on the President to put it there. Democrats are using the issue against each other, and potentially against President Reagan.

What is this all about?

The immediate stakes are votes and campaign funds. Democrats assume that more Jewish votes and funds will be available to the Democrat who can best show his devotion to the cause of putting the US Embassy in Jerusalem.

The long-range stake is title to the ancient city of Jerusalem.

The Israelis are in physical possession. They captured it during the 1967 war. They intend to keep it. Among Zionists their case is often made in a question: ''What is Zionism without Mt. Zion?'' Mt. Zion is the broad stone platform upon which the great temple of the Jewish nation once stood.

There is no Jewish temple on Mt. Zion today. There is a broad, bare expanse of rock. The great stones of the Jewish Wailing Wall flank the downhill side. In the center stands one of Islam's most famous mosques, the Mosque of the Dome of the Rock. Along one side stand to this day the walls of the Roman Praetoria where Pontius Pilate is said to have tried Jesus and from which Jesus was sent forth to the crucifixion. The Way of the Cross flanks Mt. Zion.

If Jerusalem were important to only one religion, there would be no problem. But it is central to Judaism. It is central to all Christians. It is of deep emotional importance to Muslims who believe that Muhammad sprang to heaven from that ''Dome of the Rock.''

Its importance to different people and nations is reflected in its story since World War II.

At the end of the war the British intended and expected to maintain a mandate indefinitely over Palestine. But they soon found that they could not afford the military power which would be necessary to prevent the Jews from setting up an independent and sovereign Jewish state. They turned the problem over to the United Nations. The UN proposed partition into a Jewish state, an Arab state, and a separate city of Jerusalem. Jerusalem was to be an international city under the UN.

That background is the basic reason why most embassies are still located in Tel Aviv. To put them in Jerusalem would be to abandon the concept favored by most nations that Jerusalem should belong to all.

Costa Rica is the only country which today keeps its embassy in Jerusalem itself. To this day most ambassadors, including the American, make formal calls on Israeli government officials in their offices in Tel Aviv, not in their offices in Jerusalem.

International law backs the concept of keeping the embassies in Tel Aviv. Israel holds the inner walled city and the predominantly Arab inhabited eastern part of Jerusalem by conquest. They are ''occupied territories.'' Israel claims to have annexed them. But an annexation is recognized under international law only when formalized by a treaty. Israel's claim to the whole of Jerusalem is only a claim by Israel. It is not recognized as legal by the UN, or by anyone else except, implicitly, by Costa Rica.

If the US were to move its embassy to Jerusalem, it would by so doing be recognizing the Israeli claim and thus rejecting an Arab counterclaim and also prejudging an issue which would otherwise be part of the final peace negotiation between Israel and the Arabs. It would be siding with Israel not only against the Arabs but against the preferences of the entire Muslim community and of most of the Christian community. Most Christian churches prefer an internationalized Jerusalem.

It is not for the US to prejudge this issue. The President and his secretary of state are doing the right thing in standing up to the pressure. Messrs. Mondale and Hart are wrangling over which is the most pro-Israel.

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