The child of two Americans, born overseas, does not automatically have
American citizenship. He must spend three? years in the U.S. before
his 21st? birthday in order to nail it down.

Wrong!!! The child of Americans born abroad is automatically a US citizen.
All the parents need do is apply for a certificate at the embassy. My
daughter, born in Germany has one, signed by the Sec of State George
Schultz.

The law regarding US nationality by children born abroad to one or
two US citizen parents has changed several times over the years
and the exact law that applies will depend on when the person
was born, whether one or both parents are US citizens, and
whether the parents are married at the time of the birth.
The current laws can be found on the State Department
website at http://travel.state.gov/acquisition.html

As a child of US citizens she could not claim German citizenship, the rules
in other countries vary.

Unless you or your wife was a German citizen, your daughter would
not have had any claim to German citizenship. Until recently,
Germany did not confer citizenship based on birth in Germany.
You were German if you had a German parent. Birth in Germany
played no part in equation. Germany has recently allowed children
born in Germany to long term residents to have German citizenship.

However if one parent were a third country national, the child could claim
dual citizenship and decide later.

Keep in mind that there is no requirement, by the US, to "decide"
on which citizenship you wish to have. A person with dual US/other
citizenship can keep both citizenships for life, as far as the US is
concerned. The "other" country may or may not have a requirement
to "choose" or "decide", but the US does not.

Stephen Gallagher