Israel rejects total pullback to 1967 borders

"The viability of a Palestinian state cannot come at the expense of Israel's existence," the Israeli leader said in a statement before flying to Washington for scheduled talks with Obama on Friday.

Responding to an Obama speech on Thursday outlining Middle East strategy, Netanyahu said he expected Washington to let Israel keep major settlement blocs beyond the 1967 lines in the occupied West Bank under any peace deal with the Palestinians.

Setting out the principles of a Middle East peace accord, Obama reaffirmed the U.S. commitment to Israel's security.

He called for a deal resulting in two states, Israel and Palestine, sharing the border that existed before Israel captured the West Bank in the 1967 Middle East war.

It would include "mutually agreed land swaps", he said.

Netanyahu said he expected "to hear a reaffirmation from President Obama of U.S. commitments made to Israel in 2004" -- an allusion to a letter by then-President George W. Bush suggesting the Jewish state may keep big settlement blocs as part of any peace pact with the Palestinians.

"Those commitments relate to Israel not having to withdraw to the 1967 lines," Netanyahu added. Such a border, he said, would be "indefensible."

ABBAS "APPRECIATES" OBAMA EFFORTS

Palestinian President Mahmoud Abbas welcomed Obama's efforts to renew the talks with Israel that collapsed last year, and had made plans to convene an "emergency" session of Palestinian and Arab officials to weigh further steps, a senior aide said.

Saeb Erekat, a former chief peace negotiator, said: "Abbas expresses his appreciation of the continuous efforts exerted by President Obama with the objective of resuming the permanent status talks in the hope of reaching a final status agreement."

Obama's blunt language about the need to find an end to Israel's occupation of Arab land looked certain to be the crunch issue in his talks with Netanyahu.

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

His emphasis on 1967 borders, while not a policy shift, went further than Obama has before in offering principles for resolving the stalemate between Israel and the Palestinians.

But he stopped short of presenting a formal U.S. peace plan.

Israeli officials were clearly surprised by Obama's decision to endorse a settlement based on 1967 borders just hours before he was scheduled to see Netanyahu.

Obama's criticism of continued Israeli "settlement activity" sent a message to Netanyahu on the eve of their talks that Washington expects the Jewish state to make concessions.

A senior member of Netanyahu's right-wing Likud party, Danny Danon, accused Obama of seeking to destroy Israel by adopting the vision of the late Palestinian leader Yasser Arafat.

"Netanyahu only has one option: to tell Obama to forget about it," Danon said, according to Israeli media.

However, Obama's suggestion that negotiations should focus initially on territory and security, leaving the difficult issues of Jerusalem and the return of Palestinian refugees to a later date, appeared to chime with Netanyahu's own position.

Likewise, Obama's firm rejection of Palestinian moves to seek recognition of their statehood at the United Nations delighted Israeli officials. Abbas made no comment.

The Palestinians plan to pursue their statehood drive in September at the annual meeting of the U.N. General Assembly.

Peace talks between Israel and the Palestinians, brokered by Washington, collapsed last year when Netanyahu refused to extend a moratorium on Jewish settlement building in the West Bank and Abbas refused to carry on negotiations.

In Gaza, the Islamist Palestinian movement Hamas said Obama had no business criticising the recent reconciliation pact between Hamas and Abbas's secular Fatah movement, intended to end a four-year split and produce a unity government.

"The peoples of the region are not in need of Obama's lectures," spokesman Sami Abu Zuhri said. "Obama reaffirmed his absolute support for the policies of the (Israeli) occupation and his rejection of any criticism of the Occupation."

"We affirm that Palestinian reconciliation is a Palestinian affair and that the (peace) negotiations have proven to be pointless," he said. "Hamas will never recognise the Israeli occupation under any circumstances."

(Additional reporting by Ori Lewis and Nidal al-Mughrabi; writing by Douglas Hamilton; editing by Mark Heinrich)