1/ Overall, Israeli Judaisation of Jerusalem have failed. 1970s policy (yes, explicit policy) was to keep Palestinians at 30% of the population in the municipal area, but today they are 40%.
There are a range of policy responses to the bi-national reality:

2/ Integration (aka "Israelisation") - in education, employment, commerce and leisure. This is happening inevitably given that the Wall disconnected East Jerusalem from the West Bank, but there are attempts to encourage it.
But there's a very clear ceiling to this policy.

3/ Israel does not want 350k East Jerusalemites to become Israeli citizens. Citizenship applications are processed slowly and half are denied. Most Palestinians do not want to become Israeli citizens but even if they did, Israel would clearly try to prevent that.

4/ Fragmentation - Israeli policies against the emergence of local leadership, to fragment Palestinian population within and from the West Bank. This makes the emergence of a political/popular challenge more difficult.

5/ Bureaucratic policies - revoking residency (tens of thousands since 1990s) of people who leave the city for a few years. It doesn't change the overall trajectory though. https://www.btselem.org/publications/summaries/199704_quiet_deportation

6/ Planning - making it all but impossible for Palestinians to achieve building permits in Jerusalem (let alone public investment+housing). Many build "illegally" (hence house demolitions) some move to "Jewish neighbourhods".

7/ Again this does not change the binational reality, but it's an instrument of pressure and fragmentation that holds the population in check.

8/ Oppression - policies of arrests, closing down events and institutions, heavy handed police intervention, what we currently see in the Old City and Damascus Gate.

9/ Settlement efforts - establishing strongholds within Palestinian neighbourhoods (Silwan, Sheikh Jarrah). The aim is to "clear" entire sections within these neighbourhoods, and to maintain police/security presence to entrench Israeli domination and settlement expansion.

10/ What's the long game? There is no long game. There's tension between these policies. The right ultimately aims for mass removal of Palestinians, at least from some neighbourhoods in Jerusalem. Others are happy to maintain the reality of urban Apartheid.

11/ Most Israeli policies make life harder for Palestinians, but it's clear that under current conditions they stay and their large share of the population will probably increase. Their Israeli residency status allows them certain rights that West Bankers don't have.

12/ And Israeli policies of integration (in education/economy), which aim to contain Palestinians, inevitably also empower them and create the conditions for political challenge.