I find that when reading the whole chapter it becomes apparent that the prophecy was written to Israelites. I could hardly imagine that God, back then, was chastising Arabs who weren't even living there, yet. The chapter keeps going back to mentioning Israel. I'm inclined to think that you're right, and that this refers to Israelite Damascus, when it was part of the tribe of Dan.
I would also note that the tribe of Dan was the only one of the original twelve not mentioned as part of the 144,000 in the book of Revelation. I think this may tie back into the original prophecy that Damascus would never exist again.
I would also further suggest that when regional or national capitols are mentioned, very often it's a way of referring to the country (or tribal region), and not just the capitol. I don't think this is just a prophecy against this one city, as though we could look at the standing structures and say, "See, look! They still stand!" The prophecy was against the people, not the structures. More importantly, it was really about the tribe of Dan, even though the literal words say that it was about Damascus. The tribe of Dan is gone, and I don't think that the Christ is going to number them among his own in calling his people from the four corners of the Earth (another colloquialism).
Forgive me if I seem uninitiated. I don't venture into Eschatology much, as it usually confuses me. It's just that I occasionally get that moment where I feel like I really understand something, and this is one of those moments.