President Barack Obama has warned the Palestinians that efforts to delegitimise Israel will end in failure but also called on Israel to also take "bold action" towards peace.

The president, addressing a global audience during his speech on the direction of US policy in the Middle East, warned that "symbolic actions to isolate Israel at the United Nations in September" would not lead to an independent Palestinian state.

"Palestinian leaders will not achieve peace or prosperity if Hamas insists on a path of terror and rejection," he said. "And Palestinians will never realize their independence by denying the right of Israel to exist.

In a speech in which he called America's relationship with Israel "unshakeable" he vowed that he would stand up to "attempts to single it out for criticism in international forums" and emphasised Israel's crucial right to self-defence.

But he said that the friendship meant America should also demand bold action from Israel.

He said: "The dream of a Jewish and democratic state cannot be fulfilled with permanent occupation.

"What America and the international community can do is state frankly what everyone knows: a lasting peace will involve two states for two peoples."

He called for a Palestinian state "based on the 1967 lines with mutually agreed swaps" and added: "The Palestinian people must have the right to govern themselves, and reach their potential, in a sovereign and contiguous state."

The President also said that, following the Hamas and Fatah unity government agreement, Palestinian leaders needed to "provide a credible answer" to the question of how Israel could negotiate "with a party that has shown itself unwilling to recognize your right to exist".

President Obama said the peace process would be hard but added: "I'm convinced that the majority of Israelis and Palestinians would rather look to the future than be trapped in the past."

He added: "That is the choice that must be made."