Israeli PM backs Palestinian state

He dramatically reversed policy in the face of US pressure but attached conditions which the Palestinians swiftly rejected.

A week after President Barack Obama's address to the Muslim world, Mr Netanyahu said the Palestinian state would have to be unarmed and recognise Israel as the Jewish state.

This condition would effectively amount to Palestinian refugees giving up the goal of returning to Israel.

Senior Palestinian official Saeb Erekat said the plan "closed the door" to negotiations.

Mr Netanyahu, in an address seen as his reponse to Mr Obama, refused to heed the US call for an immediate freeze of construction on lands Palestinians claim for their future state.

He also insisted the holy city of Jerusalem must remain under Israeli sovereignty.

Mr Netanyahu declared: "I call on you, our Palestinian neighbours, and to the leadership of the Palestinian Authority: Let us begin peace negotiations immediately, without preconditions."

He added: "Our right to form our sovereign state here in the land of Israel stems from one simple fact. The Land of Israel is the birthplace of the Jewish people." he said.

But Mr Netanyahu also said that Israel must recognise that millions of Palestinians live in the heart of the West Bank, and continued control over these people is undesirable. "In my vision, there are two free peoples living side by side each with each other, each with its own flag and national anthem," he said.