They believe that they are at first but they never want to believe it and in the city of glass it is relieved that they aren't and they end up being boyfriend and girlfriend. Then in the fourth book...
They know together in chapter 20 of city of glass, but they find out seperately in the two chapters before. :-)
City of glass (#3)
Clary finds out on pg 369 Jace finds out on (he just doesn't really understand) pg 413-415
No, Jocelyn tells Clary, and Sebastian (the real Jonathan) tells Jace.