RAMAT GAN, Israel, (Reuters) – Israeli Prime  Minister Benjamin Netanyahu responded yesterday to uncommon  pressure from Washington by finally giving his endorsement —  with conditions — to the establishment of a Palestinian state.

But in a speech answering President Barack Obama’s address  to the Arab world 10 days ago, the right-wing leader’s defence  of Jewish settlement on occupied land may fail to dispel tension  with the White House, as the two men try to set new terms for  the Middle East peace process in their first months in office.

Obama called Netanyahu’s shift in position on Palestinian  statehood as an “important step forward”, even as aides to  Palestinian President Mahmoud Abbas were denouncing the speech  as “sabotaging” negotiations by restating Israel’s refusal to  share the city of Jerusalem or accept Palestinian refugees.

Netanyahu, who has refused to back a state for Palestinians  since he took office in March, said he would now endorse the  establishment of a such a state — but only if Israel received  in advance international guarantees the new nation would have no  army and Palestinians recognised Israel as a Jewish state.

“If we receive this guarantee regarding demilitarisation and  Israel’s security needs, and if the Palestinians recognise  Israel as the state of the Jewish people, then we will be ready  in a future peace agreement to reach a solution where a  demilitarised Palestinian state exists alongside the Jewish  state,” Netanyahu said at Bar Ilan University near Tel Aviv.

“If (Obama) looks at the glass as half-full, this should be  sufficient,” Israeli political scientist Eitan Gilboa said of  the speech as a whole. “But if he is looking for confrontation  with Israel, he would say the glass if half-empty.”

A senior European diplomat in the Middle East questioned how  far it changed the substance of Israel’s approach. “It’s  goodwill and good words but I don’t think it’s going to appease  the Americans,” the diplomat said. “He’s trying to gain time.”

“The president welcomes the important step forward in Prime  Minister Netanyahu’s speech,” the White House said.

“The president is committed to two states, a Jewish state of  Israel and an independent Palestine, in the historic homeland of  both peoples.”

Palestinian leaders have rarely made an issue of Israel’s  insistence that their future state should not have an army in a  position to threaten its neighbour, but they have rejected the  demand that they explicitly accept Israel as a Jewish state.
To do so, they have argued, weakens the position of the 20  percent of Israel’s citizens who are Muslim and Christian Arabs,  and undermine a key demand for a right of return to what is now  Israel for millions of Palestinians classed as refugees since  the flight of Arabs during Israel’s creation in 1948.

The White House reference to Obama’s support of “a Jewish  state of Israel” may reassure Israelis, who will also hear in  his reference to “the historic homeland of both peoples” an echo  of Netanyahu’s robust defence yesterday of the Jews’  3,000-year-old claim to the land and to the city of Jerusalem.
Palestinian leaders voiced their opposition, especially to  the Israeli premier’s flat rejection of any right of return for  refugees or of a division of Jerusalem, where Palestinians want  to have the capital of their new state.
Abbas spokesman Nabil Abu Rdainah said: “Netanyahu’s remarks  have sabotaged all initiatives, paralysed all efforts being made  and challenges the Palestinian, Arab and American positions.”
Saeb Erekat, who has negotiated interim peace accords, said:  “The peace process has been moving at the speed of a tortoise.  Tonight, Netanyahu has flipped it over on its back.”
He reiterated the Palestinian demand that Israel freeze all  expansion of the settlements that are home to some half a  million Jews in the occupied West Bank and East Jerusalem.

SETTLEMENTS DISPUTE
Obama, too, in what has been the frostiest spell in U.S.  relations with Israel in a decade or more, has made a halt to  settlements a personal demand. Netanyahu repeated his agreement  not to build more settlements but indicated he still wanted to  allow what is called “natural growth” of existing ones.
“We have no intention of building new settlements,” he said.  “But there is a need to enable the residents to live normal  lives, to allow mothers and fathers to raise their children.”
Netanyahu is conscious that a harder crackdown on settlers  could fracture his right-leaning coalition government.
The White House did not comment on settlements but did say  Obama would ensure all parties “fulfil their obligations”. Under  the 2003 “road map to peace”, worked out under U.S. sponsorship,  Israel committed to freezing settlement activity.