It includes a subject and a verb and doesn't seem to need any more information in order to fully convey meaning.
As far as I understand, "this is a cat" would not be a sentence fragment?
Hopefully, me moaning about this now will help me remember once and for all.
Yes, embassies to Israel are in Tel Aviv, not Jerusalem, but that has to do with the disputed claims on Jerusalem. Remember that in most countries, the land on which an embassy sits is sovereign soil of the foreign country. Israel and Palestine have been fighting for 70+ years over who owns Jerusalem, they aren't likely to start ceding parts of it to every other country in the world. And since the UN is... uncertain... on Jerusalem's status as Israeli territory, it makes good sense for other countries to avoid the issue, and put their embassies in Tel Aviv.
tl;dr - Jerusalem is the capital of Israel, because Israel says it is.
Other than that I agree with what plats said. The seat of government is in Jerusalem. It's irrelevant where the foreign embassies are located.
Or is that just what you want us to think?