It it showing up in red, or not at all? For some reason you can only liberate to vassals (I think that it was like that with permanent allies too before patch 3.13), never just gift them cities. If the city in question no longer has enough of his culture left (most of it having become barbarian), then it will not allow liberation, and in the case of vassals you can't just gift it.
I find this really annoying, and would like it changed.