Anticipation is running high in Israel ahead of a major policy speech by Prime Minister Benjamin Netanyahu on Sunday. He is walking a tightrope.

The question everyone here is asking about Mr. Netanyahu's upcoming speech is: Will he give in to American pressure and endorse the creation of a Palestinian state? And will he agree to U.S. demands for a freeze on construction in Jewish settlements?

So far the prime minister has rejected both demands, creating a rare rift between Israel and Washington. He faces a dilemma: keeping Israel's all important relations with the United States on track, while pleasing his hawkish coalition partners.

Cabinet Minister Benny Begin of Mr. Netanyahu's right-wing Likud party warned him not to endorse a Palestinian state.

Begin said he has heard comments from U.S. officials that the two-state solution is the only solution.

"If that is the only solution," he said, "then there is no solution."

Palestinian negotiator Saeb Erekat says his side needs to hear the following points from Mr. Netanyahu. "The two-state solution, to call to stop settlement activities including natural growth, and for Israel to stop being an occupying power," he said.

Israeli analyst Ra'anan Gissin, a former government spokesman, says the prime minister will try to please everyone.

"I think the speech has to deal with the issue of the two-state solution, but it has to state it in such a way that it won't become a two-state problem," he said.

Gissin says there are conditions. "On the one side it has to be clearly determined and defined, what kind of a state the Palestinian state should be," he said. "Definitely it has to be demilitarized. And with whom do the Palestinians make peace? Not with a crusader state but with a Jewish state."

The Palestinians say those demands are an obstacle. They refuse to recognize Israel as a Jewish state because 20 percent of the population is Arab. And they reject demilitarization, saying the Palestinians have the right of self-defense.