Masjid e Aqsa mentioned in 17:1 refers to the site on Temple Mount (Al haram Al Sharif) where Solomon’s Temple stood, being the centre of Monotheism in the world. It was destroyed, re-built and destroyed again in 70AD for the second time and could not be rebuilt again for the next 600 years. At the time of Muslims’ conquest of Jerusalem (638), it was an empty site filled with debris and junk. Various Muslim and non-Muslim sources of history attest that Hazrat Umar immediately after the conquest, ordered for cleaning of the site for reconstruction of a House of God. It is well-documented.
The Umayyad Caliph Abdul Malik later built the Dome of Rock on the site (around 692) which is perhaps the oldest or second oldest Islamic building extant. It houses the Foundation Stone, which is a holy site both for Jews and Muslims.
In the verse 17:1, the main attribute of the actual location of Masjid e Aqsa is that its environs are blessed by Allah:
الَّذِىۡ بٰرَكۡنَا حَوۡلَهٗ
Please compare it with verse 7:137, where the similar description is used for the land given to Jews earlier. It makes it almost certain that the location of Masjid e Aqsa is Jerusalem. Pls also see 21:71 and 21:81.