It must be understood that this city is the same as that in Chapter 17, and it is characterized as sitting on top of the beast, first described as the Roman Empire as a whole, and then described as two of the kings of the Roman Empire.
John argues that his first century audience can figure out who the beast and the woman who rides it are by using "wisdom" (13:18; 17:9), i.e., taking the information that is given and putting it together logically. The angel also inteprets both for John in the book so that the reader will have no doubt who he is talking about (17:7).
This means that both the beast and city have first century referents that can be identified.
The attempt to identify the city as Jerusalem by some fails on numerous accounts. The argument that two cities are presented, i.e., Babylon and the New Jerusalem, is absolutely true. However, this is not a contrast between earthly and heavenly Jerusalem, but between the chaotic world ruled by the devil and the glorified world ruled by God. It is a contrast between dystopia and utopia, characterized by the cities of Babylon/Rome that represents the center of the sinful world and a restored Jerusalem that represents the center of the new world where the presence of God dwells and gives life to all of it and its inhabitants.
Revelation is truly a tale of two cities, therefore, but the two cities contrasted are the Renewed Jerusalem and Rome, the former symbolizing the kingdom of God and the latter the kingdom of the wicked world. John is arguing throughout his work that one must choose between them and cannot live in both worlds, compromising the worship of the Lord Jesus Christ with participating in pagan festivals which are held as worship events dedicated to their gods and emperor.
The description of the city does not characterize Jerusalem at all without stretching the meanings of every term and image.
1. The city is actually described as having kingship over all the kings of the earth (17:18).
2. The city is said to be a major, if not the major, center of commerce (18:3, 9, 11-15), yet scholars reject the idea that Jerusalem did much trade at all with any nation outside of itself (Philip A. Harland “The Economy of First-Century Palestine: State of the Scholarly Discussion” in Anthony J. Blasi et al. Handbook of Early Christianity: Social Science Approaches [Walnut Creek: Altimira Press] 2002, 520).
3. The city is dressed in scarlet, displaying that it has political power.
4. All of the kings live in luxury from its immoral behavior, likely referring to its plundering the nations. They weep when the city is destroyed because their luxury will be gone. No such thing occurs to the nations when Jerusalem is destroyed.
5. It is described as causing the other nations to commit sexual immorality with it (18:9), which is often a symbol of idolatry in prophetic literature. This means that all the kings of the earth participated in the religion of the city. This makes sense if John's concern is the pressure received from Rome to worship the emperor and his image and the gods of Rome, but makes little sense if Jerusalem, which denounced idolatry and even got itself in the Jewish War for trying to avoid it, is the city. Furthermore, the city really didn't have much a religious influence over the empire, so that all the kings of the earth would be viewed as participating in Judaism, and their religion is never characterized as idolatry in the New Testament.
6. The image of the beast burning the city is almost a sure use of imagery from the rumors that Nero burned the city of Rome in A.D. 64, and the Nero redivivus myth that reported that Nero would come back to life to take vengeance upon the city.
7. As discussed before, the identification of the beast as Nero is clear, but the fact that he is dead according to the book in Chapter 17, means that it is his resurrected successor who is to be identified as the beast. Since this is Domitian, who has nothing to do with destroying Jerusalem, but does in many ways work to destroy the city of Rome through his policies and destruction of the senate, the correct identification of the city should be Rome.
8. All of the deaths of Christians and everyone else on the earth is the fault of this city. This characterizes Rome, but doesn't make much sense as Jerusalem, which according to the New Testament only killed a couple of Christians that we know of (James beheaded by Herod and Stephen by the mob). One could say that this was under the jurisdiction of Rome, and also include these deaths that occurred under its watch, but one could not blame the deaths of all Christians and everyone else in the civilized world on Jerusalem without getting imaginitive with it.
The city receives the punishment in gave out to Christians in full measure, displaying that God allowed His people to be killed by it, but in no means does this mean that He will not pay it back for what it did to them.
The destruction of fire is total. The destruction of the city is ultimately a symbol for the destruction of the wicked world, its power, its luxury, etc. The fact that chaotic agents destroy their own city is parallel to the fact that the inhabitants of the earth destroy their own earth (11:18). The point, of course, is to argue that although the world enjoys life now, it will be taken from it. This is part of the warning, not to the world, but to so-called Christians who need to understand that if they bind themselves to the world by compromising with it, they bind themselves to its judgment as well. The city will never again exist upon the earth. Destruction is total and final.
In this way, the city and the beast are identifiable to the audience of Revelation, but it does not mean that they themselves do not represent larger things in the future. As discussed many times before, John uses microcosmic descriptions as that which pictures and leads up to the macrocosmic event. This means that even the city of Rome and the beast may not be the final referents, but rather are first century pictures of the wicked world and its rulers who oppress Christians. In this way, an idealist understanding of Revelation is not ruled out, as long as it takes the historical imagery as the direct referent seriously.