"Jerusalem" is one of those poems where the title isn't really the title. Actually, scratch that. It's one of those poems where the title wasn't really the title, but then became the title. Wait—huh? How does that work? Well, Blake first published the poem as part of the Preface to a much longer poem called Milton, named for this guy. As you can see here, the poem doesn't have a title and is just sort of there, right after a little confusing tirade labeled "The Preface." Check out the whole poem right here, if you dare.
Okay, so Blake never named the poem "Jerusalem" (and in fact he wrote a much longer poem called Jerusalem later on). Where did the title come from then? Well, the word occurs in the poem twice, but the poem was never really called "Jerusalem" until sometime around 1918-1920. (Nobody is really sure when or why, but it probably had something to do with the poem's focus on the spiritual vision embodied in the Biblical idea of Jerusalem).
Let's just assume for a minute that Blake did name the poem "Jerusalem," and ponder why this matters. The whole idea of Jerusalem is all over Blake's writings. By Jerusalem, Blake doesn't just mean some city in Israel, but rather the New Jerusalem, the holy, heavenly city where the true believers in God will dwell (with God) at the end of time. For Blake, Jerusalem is always the end goal, the summit of perfection, what he wants the world to become, the be-all end-all... you get the idea.
In "Jerusalem," Blake entertains the idea that maybe Jerusalem was once built in England before. If Jerusalem was there once, perhaps it could be there again? The world was once whole (Jerusalem once existed) and can be whole once more (with Jerusalem's return). Given the centrality of this concept to Blake's mythology and writings, and given that "Jerusalem" is like a miniature summation of that concept, it makes perfect sense, then, for this poem to be called "Jerusalem."