Binyamin Netanyahu has told US congressmen that Israel both wants and needs peace and a two-state solution, but that he would not accept a "return to the indefensible boundaries of 1967".

Echoing Ronald Reagan's famous speech in Berlin in 1987, the Israeli Prime Minister called on Palestinian President Mahmoud Abbas to "tear up your pact with Hamas and make peace with the Jewish state".

Mr Netanayhu, addressing a joint session of Congress for the second time in his career, said he longed for the day when Israel was one of many democracies in the Middle East.

He praised the "historic moment" of the Arab Spring and expressed the hope that it would mean the new dawn of freedom in the Middle East.

But, emphasising that the threats to Israel could not be overstated, he also warned about the "clear and present danger" of a nuclear Iran.

"If history taught us anything , it is that we must take calls for our destruction seriously," said Mr Netanyahu. "We are a nation that rose from the ashes of the Holocaust."

The Prime Minister said Israel was willing to make "painful compromises" to achieve peace with the Palestinians.

"The Palestinians share this small land with us. We seek a peace in which they will be neither Israel's subjects or its citizens."

But in a direct rebuttal to President Barack Obama's call last Thursday for a Palestinian state based on the 1967 borders with "mutually agreed swaps", Mr Netanyahu said: "this compromise must reflect the dramatic demographic changes that have occurred since.

"Something that should be said by all those who are serious about peace [is that] in any real peace agreement, some settlements will end up beyond Israel's borders .

"We will be generous about the size of a future Palestinian state [but] Israel will not return to the indefensible boundaries of 1967."

Mr Netanayhu added that Israel's conflict was not about the establishment of a Palestinian state.

"It has always been about the acceptance of a Jewish state", he said, adding that it was time for President Abbas to reject Hamas and stand before his people and say "I will accept a Jewish state".

"Those six words will change history," he added. "The only peace that will hold is a peace you can defend – a peace anchored in security."

Mr Netanyahu, who began his speech after a 20 minute delay, was welcomed with a standing ovation from members of Congress.

He was later interrupted by a woman shouting at him, but as the protester was escorted out Mr Netanyahu praised her as an example of the real democracy that could not be present in the "farcical parliaments" of Tehran and Tripoli.

He said he was "deeply honoured" to be given the opportunity to speak to "a lot of old friends and a lot of new friends of Israel, Democrats and Republicans alike".

Mr Netanyahu first spoke at Capitol Hill in 1996. He is one of only four Israeli premiers to be given the honour; the others were Yitzhak Rabin, Ehud Olmert and Israel's now President Shimon Peres.