Netanyahu endorses demilitarized Palestinian state

The White House called his speech "an important step forward."

But Netanyahu also said the Palestinians must recognize the Jewish character of Israel, a condition Palestinian president Mahmud Abbas has long rejected.

He also ruled out a halt to all Jewish settlement activity as demanded by the United States.

"If the Palestinians recognize Israel as the state of the Jewish people, then we arrive at a solution based on a demilitarized Palestinian state alongside Israel," Netanyahu said.

"The Palestinian territory will be without arms, will not control airspace, will not be able to have arms enter, without the possibility of striking alliances with Iran or (the Lebanese Shiite militia) Hezbollah."

Netanyahu also ruled out a complete stop to settlement activity in the occupied West Bank -- which the Palestinians have said is a condition for relaunching talks -- and said Palestinian refugees would not be resettled inside Israel’s borders.

The Palestinians recognized Israel as a state in 1993 as part of the Oslo accords but have refused to recognize it as "Jewish" because doing so would effectively mean giving up the right of return for Palestinian refugees, a key Palestinian demand since Israel was created in 1948.

The Palestinians quickly slammed Netanyahu’s speech, which Abbas spokesman Nabil Abu Rudeina said "torpedoes all peace initiatives in the region."

"It hobbles all efforts to save the peace process, in a clear defiance of the US administration," he told AFP.

The Islamist Hamas movement ruling the Gaza Strip condemned it as reflecting a "racist, extremist" ideology that denied Palestinian rights.

The speech was billed as a response to Obama’s address to the Muslim world 10 days ago in which he reiterated Washington’s "unbreakable" bond with Israel but also called the Palestinian situation "intolerable."

"IMPORTANT STEP FORWARD"

White House spokesman Robert Gibbs said in a statement Obama "welcomes the important step forward in Prime Minister Netanyahu’s speech."

The US statement reiterated Obama’s commitment to a two-state solution, with a Jewish state of Israel and an independent Palestine "in the historic homeland of both peoples."

Obama "believes this solution can and must ensure both Israel’s security and the fulfillment of the Palestinians legitimate aspirations for a viable state, and he welcomes Prime Minister Netanyahu’s endorsement of that goal," it said.

French Foreign Minister Bernard Kouchner welcomed Netanyahu’s endorsement of the prospect of a Palestinian state, saying "the speech represents a step forward from that point of view."

In recent weeks Washington had increased pressure on Israel’s new government to endorse the idea of a Palestinian state and halt all settlement activity.

The Obama administrations position raised fears in Israel that its main ally may ease its support as it tries to improve relations with the Muslim world.

The US stance put Netanyahu in a difficult position, as his heavily right-wing 10-week-old government could collapse if he gives in to too many of Washington’s demands.

"It was a brilliant speech but it had one miserable phrase that laid the cornerstone for the creation of a state of Palestine," Likud MP Danny Danon said following the premiers address.

"I will do everything in my power in parliament to prevent this from happening."

The main settlers organization in a statement condemned the speech.

"We deplore that the prime minister has agreed to the creation of a demilitarized Palestinian state after he has said for years that such a state, even demilitarized, would be a threat to Israel," the Yesha Council said.

But Daniel Ben Simon, an MP from the centre-left Labor party, part of Netanyahu’s coalition, called it a "revolutionary speech" and said Israel’s centrist parties should encourage the hawkish prime minister.

He added that such support could "lead to a miracle of a peace agreement with the Palestinians under a centre-right government, something at which left-wing governments never succeeded."

A Western diplomat speaking on condition of anonymity said the speech "is certainly encouraging and gives us a lot of work with."

"I think everyone understands Israel’s concerns and the demand for a demilitarized (Palestinian) state has always been part of the agenda."

Washington provides Israel with 2.4 billion dollars of annual military aid as well as diplomatic support, making the United States its most important ally.

Israel and the Palestinians relaunched their negotiations at a US conference in November 2007, but the talks made little progress and were suspended during Israel’s blistering war on Gaza in December and January.

Netanyahu on Sunday also responded to the elections in Iran, saying the "biggest threat to Israel, the Middle East and the entire world is the crossing of a nuclear weapon with radical Islam."

Israel, the regions sole if undeclared nuclear power, has accused Iran of racing to develop atomic weapons under the guise of a civilian nuclear program, allegations Tehran vehemently denies.