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Netanyahu's two-state solution: You recognize us, we'll recognize you.

Some see the Israeli prime minister's demand that Arabs recognize Israel as a Jewish state as a simple quid pro quo, but critics say it's a new obstacle.

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Likewise, the expansion of Jewish settlements in the West Bank and East Jerusalem – areas Palestinians claim for a future state and capital – is contentious. In his speech, Netanyahu said settlements must be allowed to grow to accommodate growing families, and insisted Jerusalem remain the undivided capital of Israel.

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Palestinians argue that the demand to recognize Israel's Jewish character has nothing to do with peace talks, but is more about an Israeli domestic debate over the character of the state and the Arab minority – a question that they claim is best left to Arabs and Jews inside Israel.

"This is a domestic issue that is not dependent on the Palestinians," says A.B. Yehoshua, a left-wing Israeli novelist. "Israel's borders are clear. It stands firmly ... 170 countries recognize us. Why exactly do the [Palestinians] need to recognize [Israel]? Why are they getting into this problem?"

Professor Dejani agrees. "It is up to the state to decide what type of government it wants," he says.

Some wiggle room for negotiators

Egyptian President Hosni Mubarak said on Monday that Netanyahu's speech throws a wrench into peace efforts.

"The proposal to recognize Israel as a Jewish state complicates the situation further," the official Nile TV network quoted Mr. Mubarak as saying.

Former President Jimmy Carter, in Jerusalem as part of a Middle East tour, echoed those sentiments. He told reporters in Jerusalem on Monday that Netanyahu had "raised many new obstacles to peace that had not existed with previous prime ministers." But he said he remained optimistic, noting that during his presidency there had initially been "even greater differences" with his Israeli counterpart Menachem Begin before he was able to broker the historic 1979 Camp David accords between Israel and Egypt.

Yossi Alpher, coeditor of the online Israeli Palestinian opinion journal Bitterlemons.org, says Netanyahu's newly stated policy gives negotiators some wiggle room because it remains unclear how Palestinians would fulfill this demand.

"It was confusing, and I would assume deliberately so," he says. "This is an issue that he can talk about, knowing he has backing of the US," he adds. "Obama and Mitchell have said something similar, but it could very well prevent Palestinians from speaking to him."

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