t first blush, one might deduce that this psalm is about Jerusalem. And, in a way, that would certainly be true. But, notice the object of the first 2 phrases. "Great is the LORD, and greatly to be praised in the city of our God..." God is being praised, not the city itself. If He were not in it, blessing it... the city would be nothing of value to speak of. The reason for Jerusalem's importance and reputation is found in Psalm 48:3, "God is known in her palaces..." Paul said in I Corinthians 15:34, "Some have not the knowledge of God..." and, what a tragedy that is! But, in the day when this song (Psalm 48) was written, God was known in Jerusalem, therefore she was blessed. And, not only was God known, but He was constantly and consistently living up to His reputation there (Psalm 48:8 & 10).
Now, you may take issue with the statement that God was "living up to His reputation" in the days of David. Doesn't He always live up to His reputation? Well, surprisingly, the answer is a resounding "No!" Not that there is any shortcoming or inadequacy in Him. We know He is impeccably perfect. However, sometimes His reputation is skewed by misinformation. For example, there have been many preachers and teachers in modern times who have espoused a conception of God that presents Him as all-generous-love-with-a-grandfatherly-predictability. An oversimplification of this false gospel might sound something like this: "If we will live for God, then He will certainly make us healthy, wealthy and wise." Well, even a cursory study of the Bible will demonstrate that such a view is grossly inaccurate. So, when God's reputation is inaccurate, His character keeps Him from living in accordance with man's expectations.