Acting Israeli Prime Minister Ehud Olmert says Israel must cede more territory to the Palestinians. He said that if a peace agreement cannot be reached, Israel would act in its own interests unilaterally.
In his first policy speech, Ehud Olmert said Israel will have to give up additional parts of the West Bank.
"We cannot continue to rule over territories with a large Palestinian population," he said.
He said Israel would have to relinquish part of its biblical homeland to ensure a strong Jewish majority.
"The most important and dramatic step before us is drawing permanent borders for the state of Israel," he said. Those borders would include keeping big West Bank settlement blocs and Jerusalem under Israeli control.
The Palestinians reject that position and have demanded that Israel return all the territory captured in the Six Day War in 1967. That would include the West Bank and the Old City of Jerusalem, home to Judaism's holiest sites.
Mr. Olmert said there can be no Jewish state without Jerusalem as its capital.
The speech is significant because according to the polls, Mr. Olmert will be elected by a landslide in national elections on March 28. He has emerged as the successor to Prime Minister Ariel Sharon who suffered a massive stroke three weeks ago and remains in a coma.
Mr. Olmert said a negotiated agreement with the Palestinians is preferable, but he did not rule out unilateral moves like Israel's pullout from the Gaza Strip in August. Palestinian officials responded that Israel should abandon the path of unilateralism and return to the negotiating table.
But Mr. Olmert said peace talks can proceed only if the Palestinians keep their key commitment under the U.S.-backed "road map" peace plan and dismantle terrorist groups.