Israel's Prime Minister Benjamin Netanyahu delivers a speech at Bar-Ilan University in Ramat Gan near Tel Aviv, 14 Jun 2009

Israeli Prime Minister Benjamin Netanyahu has for the first time endorsed the goal of creating a demilitarized Palestinian state.

In a major policy speech Sunday, Mr. Netanyahu attached two key conditions to his acceptance of Palestinian statehood. He said he wants international guarantees that a Palestinian state would not have a military capability that could threaten Israel's security.

Mr. Netanyahu also said the Palestinian leadership must recognize Israel as the historic homeland of the Jewish people.

Palestinian President Mahmoud Abbas has rejected this demand. His government has said Palestinian refugees who fled Israel during its war of independence, and their millions of descendants, should have a right of return to their former homes.

U.S. President Barack Obama has called for a two-state solution to the Israeli-Palestinian conflict comprising an independent Palestine alongside a Jewish state of Israel.

Mr. Netanyahu called on Mr. Abbas' government to resume peace talks with Israel immediately. He also urged Arab states to cooperate with Israel in boosting the Palestinian economy.