Throughout the time Berlin was formally under four-power control, the U.S. was insistent that Berlin, East or West, should not be considered a capital until Berlin was unified. Relations with the East German state were hampered because of this policy, and by the erection of the Berlin Wall in 1961. The wall made the site of the former U.S. Embassy, still owned by the U.S. government, an inaccessible vacant lot that was part of the security zone separating east and west Berliners. The site became accessible after the Berlin Wall came down in November 1989, but remained a vacant lot until the 2004 groundbreaking for construction of a brand new U.S. Embassy.
In the early 1970s the U.S., along with most other western states, finally decided to grant diplomatic recognition to East Germany. However, this recognition did not extend to recognizing East Berlin as part of the GDR or its capital. The treaties establishing the U.S. Embassy in East Berlin referred only to East Germany's "seat of government." Since 1977 located its facility at Neustädtische Kirchstrasse 4-5, just several blocks from the former Blucher Palace site in the Mitte district. The building was built in the late 19th century as a club for Prussian officers, and after World War I became the home to a craft guild. This five storied, gabled building was leased to the U.S. by the East Germans. The building no longer retains any of its original interior features. The exterior retains much of its original stone facade.
http://en.wikipedia.org/wiki/Embassy_of_the_United_States_in_Berlin#Embassy_in_East_Berlin_.28c._1974.E2.80.931990.29