Benjamin Netanyahu, 25 Mar 2009As Israel's new right-wing government marks a milestone, it is softening its position on the creation of a Palestinian state.  But the Palestinians are skeptical.

Under pressure from the United States, Israel's hawkish Prime Minister Benjamin Netanyahu used this formula on Palestinian statehood for the first time:

He told the weekly Cabinet meeting that Israel supports the concept of "two states for two peoples."   

The Cabinet met on Mr. Netanyahu's 100th day in office, and he said the greatest achievement of his government, so far, is the agreement on the issue of Palestinian statehood.  It is a major about-face for a man who has long opposed a Palestinian state and supported Jewish settlement in all the biblical Land of Israel.  

Mr. Netanyahu was forced to soften his position because it led to a deepening rift between Israel and Washington, which supports the two-state solution and sees settlement expansion as an obstacle to peace. But while seeking to patch up relations with the U.S., the Prime Minister must also appease his hawkish coalition partners.  So he again spelled out tough conditions for Palestinian statehood.

Mr. Netanyahu said the Palestinian state must be demilitarized, Israel must be recognized as a Jewish state, and there would be no "right of return" of Palestinian refugees to their former homes in Israel.

Palestinian legislator Mustafa Barghouti says that means Israel's two-state solution is no solution at all.

"Netanyahu is refusing a Palestinian state, he wants to substitute the Palestinian state with a ghetto, with no sovereignty, with no control of its land," said Mustafa Barghouti.

While reluctantly endorsing Palestinian statehood, Mr. Netanyahu has rejected U.S. and Palestinian demands for a complete freeze on construction in the settlements.  Israeli Defense Minister Ehud Barak says he will propose a compromise on the issue when he meets with U.S. Middle East envoy George Mitchell this week in London.