Quartet emissary Tony Blair on Thursday offered a strong endorsement of Binyamin Netanyahu's capacity to achieve peace, backing the prime minister's focus on fostering West Bank economic growth and bolstering the Palestinians' security capacity.

Netanyahu "most certainly can play the role of peacemaker," Blair told The Jerusalem Post in an interview, adding that there was now "a moment of opportunity" that required both negotiation from the "top down" and improving the economy and security realities from the "bottom up."

Blair said Netanyahu recognized that making progress "is going to be a very tough challenge internally and externally. His big preoccupation is the security of Israel. He's very focused obviously on the issue of Iran."

The former British prime minister stressed that he was "completely sympathetic" to Israel's security concerns. "We also believe it is possible, consistent with that and provided the Palestinians adhere to their responsibilities, to give the Palestinians control of their own territory and a state." Netanyahu, said Blair, "understands that."

Blair also set out an unequivocal position on the need to halt Iran's path to the bomb. It was, he said, hard to judge how much time was left to stop Iran. But "we are far more likely to avoid confrontation if we are absolutely clear and plain, right from the beginning, with no ambiguity, that they cannot have a nuclear weapons capability."

The envoy was speaking to the Post the day after he met with Netanyahu, who announced that he would head a ministerial committee devoted to improving the West Bank economy and the quality of life in the Palestinian Authority. That kind of prime ministerial readiness to focus on the details was, said Blair, exactly "what I want... People have been saying to me in the last year, 'Why are you bothered about such and such a checkpoint or whether there's a bit of agri-industrial thing round Jericho? And I say, 'Because it matters. The detail on the ground really matters."

If, for instance, the conditions were created to truly exploit Jericho's tourism potential, he elaborated, then the Palestinians there, whose lives were directly improved, would be more willing to support the "difficult concessions" that a viable peace accord would necessitate.

Blair said the Annapolis process, and the negotiations between former prime minister Ehud Olmert and PA President Mahmoud Abbas, "did get further than people think." But Annapolis had failed to achieve the intended agreement, because it was a mistake to "put all your eggs in the top-down basket."

"States are not about maps," he declared. "States are about institutions. They're about governing capacity. They're about what actually happens within that defined territory. You can have a map with a border that isn't what I would recognize as a state in any functioning sense. That's my reason why I don't think [Annapolis] worked in the end."

Nonetheless, in an improved climate, he said, the current key players - Netanyahu and his coalition, and Abbas and PA Prime Minister Salaam Fayad - could bridge their ideological divides.

"You'd be nuts if you were naively optimistic after all we've been through over the years. But I do think this is a moment of opportunity... a moment of truth," he said. "There is an opportunity now, after many months of semi-paralysis."

The world was changing, he explained, and the Middle East was facing the choice of modernizing or, amid Iran's growing influence, staying in the past. If Israel and the Palestinians could live together in peace "in this small bit of territory... they could make it into a highly successful and vibrant part of the world."

And the way Israel had created and built itself over the past six decades, he added, "is not a bad model."

He said the Palestinian leadership was ready to push ahead, and that Hamas would be left behind if it did not "get on board with a two-state solution. "There is a whole set of proposals now on the rule of law for the Palestinians, supported by various parts of the donor community, for things like courts and prisons and the judiciary and the prosecution service and so on, along with further training with [US] General Dayton of the [PA] security forces."

As for Netanyahu's refusal to endorse Palestinian statehood, and the PA's refusal to recognize Israel as a Jewish state, Blair said such differences were "resolvable... if everything is moving forward."

He also said Israel had to be "sensitive to how seriously people take the issue" of settlements.

"If you're to negotiate the parameters of statehood in the end, you don't want, on either side, for there to be a situation where the facts on the ground just make it impossible," he said. "This will be something to be discussed over the next few weeks and it's probably not sensible to get into all the details, but I personally believe that, again, there are ways around this issue... I don't think it's gone so far that we cannot still have a Palestinian state."