TEL AVIV/RAMALLAH: Israeli Prime Minister Benjamin Netanyahu yesterday endorsed for the first time the creation of a Palestinian state, provided it was demilitarized, after weeks of US pressure.

But he also said the Palestinians must recognize the Jewish character of Israel, a condition Palestinian President Mahmoud Abbas has long rejected.

“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 air space, will not be able to have arms enter, without the possibility of striking alliances with Iran or Hezbollah.”

Netanyahu ruled out a complete halt to Israeli settlement activity in the occupied West Bank, as demanded by key ally the United States.

“I do not wish to build new settlements or to confiscate lands to that end, but we have to allow the residents of the settlements to live normal lives,” he said, using the stock phrase for allowing construction to accommodate population growth in settlements.

He also said Palestinian refugees would not be resettled inside Israel’s borders.

“The key condition is that the Palestinians recognize in a clear and public manner that Israel is the state of the Jewish people,” Netanyahu said.

“The heart of the (Middle East) conflict has always been the Arabs’ refusal to accept the existence of the Jewish state,” he said. “The withdrawals that Israel has carried out in the past have not changed this reality.”

The Palestinians have said they will not return to the negotiating table until Israel halts all settlement activity, and a spokesman for Abbas slammed the speech. “This speech torpedoes all peace initiatives in the region,” Nabil Abu Rudainah said.

Another senior Abbas aide, Yasser Abed Rabbo, also blasted the speech.

“He spoke of a Palestinian state while emptying it of any substance by excluding a stop to settlements,” he said.

Palestinian Labor Minister Ahmed Al-Majdalani accused Netanyahu of “inviting President Abbas for talks while removing the infrastructure that would allow such negotiations.”

The minister slammed Netanyahu for “encouraging the settlers and complimenting them, indicating total identification with them.”

The Hamas movement also slammed Netanyahu’s address saying it reflected a “racist, extremist ideology.”

Meanwhile, the committee of Jewish settlements in Binyamin bloc, located north of Jerusalem and Ramallah, said the speech lacked inspiration and that the prime minister had betrayed his public.

“Instead of standing firm behind his pre-election announcements Netanyahu prefers vague statements that compliment Meretz’s political platform very nicely. It’s sad to see a representative of the fighting-family adopting the rhetoric of Yossi Beilin and Shimon Peres,” the committee stated.

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 said the Palestinian situation was “intolerable.” Obama has vowed to aggressively pursue a two-state solution and in recent weeks Washington had ramped up pressure on Israel’s new government to endorse the idea of a Palestinian state and halt all settlement activity. The blunt words to Israel from Obama’s administration have raised fears in the Jewish state that Washington may ease its support as it tries to improve its relations with the Muslim world.

Former US President Jimmy Carter told the Israeli Haaretz daily yesterday that Israel risked a head-on collision with Washington over the settlements.

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

Netanyahu faces a delicate balancing act in responding to American pressure, as most in his largely right-wing 10-week-old coalition oppose US demands on settlements and would probably quit the government if he caves in to the pressure, analysts say.

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.

— With input from agencies