Speaking at a Jerusalem Post conference on Thursday, Mr Blair repeated his recent suggestion that Israel's new relationship with the Gulf States could yet resolve the conflict with the Palestinians.
“The foundation of the approach in the region, that Israelis and Palestinians negotiate peace and then the rest of the region joins, is the diametric opposite of what should happen,” he said.
“Actually, what you need to do is create peace between Israel and the Arab nations and include the Palestinian issue in that peace.”
He said we were now witnessing a major shift towards modernisation in the Arab world.
"All over the Arab world there is a struggle between two ideas," he observed.
“First, there is a group of leaders who want to modernize their societies and their economies, and they want to distinguish between Islam and Islamism.
“Second, they want economies that are open - so if their people work hard they can do well."
He warned that Iran, and its Shia allies, still represented a threat to this vision.
But added: "There is a shared interest between Israel and the Muslim Arab nations around how the Middle East will develop.
"That's the thing that is exciting - why there is peace between Israel and the UAE."
The ex-PM, who was appointed special envoy of the Quartet – a group of four nations and international bodies involved in mediating the Israeli-Palestinian peace process – also called on Israel to recognise the importance of trying to improve the economic conditions for the Palestinians.
“In the end, I think it’s the best way to resolve the Palestinian issue fairly and justly,” he said.
