Israeli Prime Minister Benjamin Netanyahu says he would accept a Palestinian state as long as it has no military force and recognizes Israel as the nation state of the Jewish people.  His remarks came in a major policy speech late Sunday in which he said he believes peace is possible.  Mr. Netanyahu's remarks have drawn an angry response from the Palestinian leadership.

It was the first time the Israeli Prime Minister has called for the creation of a Palestinian state since taking office this year. 

The speech, delivered at Bar Ilan University near Tel Aviv, was aimed at easing tensions with Washington.

Benjamin Netanyahu's earlier refusal to endorse a Palestinian state is one of the issues that has put him at odds with the administration of U.S. President Barack Obama, who says Palestinian statehood is the only way to resolve the conflict.

Mr. Netanyahu said he is willing to restart negotiations, and he laid out Israel's conditions for agreeing to Palestinian statehood.  First, he said, the Palestinians must explicitly recognize Israel as the nation state of the Jewish people.

He also said that in any peace agreement, the territory under Palestinian control must be disarmed, with solid security guarantees for Israel.

He added that Israel would continue to control the airspace of any future Palestinian state. 

Mr. Netanyahu said that if Israel gets a guarantee for demilitarization and security arrangements, and if the Palestinians recognize Israel as a Jewish state, Israel would be willing to reach a peace agreement that includes a demilitarized Palestinian state.

The Israeli leader's speech drew immediate criticism from Palestinian President Mahmoud Abbas.  A spokesman for Mr. Abbas accused the Israeli leader of sabotaging the peace process.  The spokesman said Mr. Netanyahu's conditions would not lead to a complete and just peace.

Palestinian legislator Hanan Ashrawi, a former aide to the late Palestinian leader Yasser Arafat, says she does not see Mr. Netanyahu's remarks pushing the peace process forward.

"The first condition is that all Palestinians transform themselves suddenly to become Zionists, i.e., to adopt the Zionist ideology that our homeland is not ours, that our history not ours, that our future and our future state is not ours," said Hanan Ashrawi. "In a sense, he's saying, 'Okay, you can have whatever entity you want.  You can call it a state, but it will have none of the attributes of sovereignty or your own genuine control.'"

Ashrawi calls Mr. Netanyahu's position "regressive".

"It is just a new formulation - not even new," she said. "It's a reformulation of an old and tired and failed ideology, and it's not going to get us anywhere." 

The Israeli leader said the issue of Jewish settlements in the West Bank - one of the key sticking points in the peace process - would be discussed as part of a final peace agreement.  He suggested that there would be no immediate moves to remove the settlements and said the settlers should be allowed to live normal lives for the time being.

Mr. Netanyahu repeated Israel's longstanding position that it will not allow a return of the Palestinian refugees displaced in 1948 after the creation of the State Israel.  He said Jerusalem,  which the Palestinians want as the capital of their future state, would remain the undivided capital of Israel.  

Some analysts say Mr. Netanyahu's new willingness to negotiate might represent a move forward in the peace process. 

With the Israeli leadership's position now clearer, it remains to be seen whether the Palestinians will return to negotiations under Israel's new terms.