With caveats, Netanyahu backs state for Palestinians

The West Bank-based Palestinian government dismissed the proposal.

"Netanyahu's speech closed the door to permanent status negotiations," senior Palestinian official Saeb Erekat said. "We ask the world not to be fooled by his use of the term 'Palestinian state' because he qualified it. He declared Jerusalem the capital of Israel, said refugees would not be negotiated, and that settlements would remain."

Netanyahu, in an address seen as his response to Obama, refused to heed the US call for an immediate freeze of construction on lands Palestinians claim for their future state. He also said the holy city of Jerusalem must remain under Israeli sovereignty.

The White House said Obama welcomed the speech as an "important step forward."

Netanyahu's address was a dramatic transformation for a man who was raised on a fiercely nationalistic ideology and has spent a two-decade political career criticizing peace efforts.

"I call on you, our Palestinian neighbors, and to the leadership of the Palestinian Authority: Let us begin peace negotiations immediately, without preconditions," he said, calling on the wider Arab world to work with him. "Let's make peace. I am willing to meet with you any time, any place - in Damascus, Riyadh, Beirut, and in Jerusalem."

Since assuming office in March, Netanyahu has been caught between American demands to begin peace talks with the Palestinians and the constraints of a hard-line coalition. Yesterday, he appeared to favor Israel's all-important relationship with the United States at the risk of destabilizing his government.

But his call for establishing a Palestinian state was greeted with lukewarm applause among the audience at Bar-Ilan University, known as a bastion of the Israeli right-wing establishment.

As Netanyahu spoke, two small groups of protesters demonstrated at the university's entrance.

Several dozen hard-liners held up posters showing Obama wearing an Arab headdress and shouted slogans against giving up West Bank territory. Across from them, a few dozen dovish Israelis and foreign backers chanted slogans including "Two states for two peoples" and "Stop the occupation."

Police kept the two groups apart.