Benajmin Netanyahu has offered to halt construction in the West Bank if the Palestinians recognise Israel as a Jewish state.
The Israeli prime minister said that the Middle East conflict “will never end” unless the Palestinians agree to this.
A ten-month-long freeze on settlement construction expired last month. Talks between Mr Netanyahu and Palestinian president Mahmoud Abbas have stalled in the wake of this.
But speaking at the opening of the Knesset’s winter session, Mr Netanyahu said: “If the Palestinian leadership will say unequivocally to its people that it recognises Israel as the homeland of the Jewish people, I will be ready to convene my government and request a further suspension.”
He added: “Unfortunately up until now the Palestinians have not responded to this call.”
Mr Netanyahu said that US negotiators, who initiated the relaunch of the peace talks in Washington in September, had made various suggestions.
But he said any proposals would only be considered “in relation to Israel's interests, first and foremost security and the promise of continued existence.”
He told Israel’s parliament: “The refusal to recognise the rights of the Jewish people and its historic connection to the place is the root of the conflict.”
A spokesman for Mr Abbas said: “The issue of the Jewishness of the state has nothing to do with the matter.”
Mr Netanyahu’s speech followed the decision by Israel’s cabinet to approve a controversial loyalty bill requiring non-Jewish citizens to swear loyalty to the "Jewish and democratic" state.
The prime minister said in his speech: “Israel is the nation state of the Jewish people as well as a democratic state of all its citizens in which its Jewish and non-Jewish citizens enjoy equal rights".
"There is no state in our region that maintains the rights of the individual and the rights of the minority as Israeli democracy does.”
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