The prime minister of Israel, Benjamin Netanyahu, on Sunday endorsed for the first time the principle of a Palestinian state alongside Israel, but on condition that the state was demilitarized and that the Palestinians recognized Israel as the state of the Jewish people.

In a much-anticipated speech meant in part as an answer to President Obama’s address in Cairo on June 4, Mr. Netanyahu reversed his longstanding opposition to Palestinian statehood, a move seen as a concession to American pressure.

But he firmly rejected American demands for a complete freeze on Israeli settlements in the West Bank, the subject of a rare public dispute between Israel and its most important ally on an issue seen as critical to peace negotiations.

And even his assent on Palestinian statehood, given the caveats, was immediately rejected as a nonstarter by Palestinians.

In a half-hour speech broadcast live in Israel, Mr. Netanyahu, the leader of the conservative Likud Party, laid out what he called his “vision of peace”: “In this small land of ours, two peoples live freely, side-by-side, in amity and mutual respect. Each will have its own flag, its own national anthem, its own government. Neither will threaten the security or survival of the other.”

But Mr. Netanyahu insisted on “ironclad” guarantees from the United States and the international community for Palestinian demilitarization and recognition of Israel’s Jewish character.

Given those conditions, Mr. Netanyahu said, “We will be ready in a future peace agreement to reach a solution where a demilitarized Palestinian state exists alongside the Jewish state.” He also said that no new settlements would be created and no more land would be expropriated for expansion, but that “normal life” must be allowed to continue in the settlements, a term he has used to mean that limited building should be allowed to continue within existing settlements to accommodate “natural growth.”

While this position did not diverge from Mr. Netanyahu’s previous statements, he delivered it on Sunday in the context of a speech he had billed as a major foreign policy address, one he had personally urged Mr. Obama to watch. It came 10 days after Mr. Obama bluntly rejected “the legitimacy of continued Israeli settlements” in his address to the Muslim world in Cairo.

The White House reaction was positive, if limited, focusing on what it called “the important step forward” of Mr. Netanyahu’s support for a two-state solution to the Israeli-Palestinian conflict.

In a statement, the White House press secretary, Robert Gibbs, reiterated the president’s vow for a two-state solution that “can and must ensure both Israel’s security and the fulfillment of the Palestinians’ legitimate aspirations for a viable state,” and he said that Mr. Obama “welcomes Prime Minister Netanyahu’s endorsement of that goal.”

Indeed, in moving closer to the American and international consensus for a two-state solution, Mr. Netanyahu risked alienating right-wing ideologues within his party and his governing coalition. Ron Dermer, the prime minister’s director of communications and policy planning, said that in accepting the notion of a Palestinian state, Mr. Netanyahu had “crossed a personal Rubicon.”

Citing the biblical vision of Isaiah of swords beaten into plowshares, Mr. Netanyahu said of the Palestinians, “We do not want to rule over them, to govern their lives, or to impose our flag or our culture on them.”

But beyond the idea of a state, he seemed to offer little room for compromise or negotiation.

He referred repeatedly to the West Bank, the territory presumed to comprise the bulk of a future Palestinian state, by its biblical name of Judea and Samaria, declaring it “the land of our forefathers.”

Mr. Netanyahu made no mention of existing frameworks for negotiations, like the American-backed 2003 peace plan known as the road map.

He did not address the geographical area a Palestinian state might cover, and he said that the Palestinian refugee problem must be resolved outside Israel’s borders, negating the Palestinian demand for a right of return for refugees of the 1948 war and for their millions of descendants.

He insisted that Jerusalem remain united as the Israeli capital. The Palestinians demand the eastern part of the city as a future capital.

“Benjamin Netanyahu spoke about negotiations, but left us with nothing to negotiate as he systematically took nearly every permanent status issue off the table,” Saeb Erekat, the Palestinian negotiator, said in a statement. “Nor did he accept a Palestinian state. Instead, he announced a series of conditions and qualifications that render a viable, independent and sovereign Palestinian state impossible.”

Palestinian negotiators have long refused to recognize Israel as a Jewish state, contending that it would prejudge the refugees’ demand for a right of return and would be detrimental to the status of Israel’s Arab minority.

Mr. Dermer, the communications director for Mr. Netanyahu, said that Palestinians’ recognition of Israel as a Jewish state was “not a precondition” for negotiations. But, he said, “there will not be an agreement without that recognition.”

Mr. Netanyahu delivered his speech to an invited audience at the Begin-Sadat Center for Strategic Studies at Bar-Ilan University outside Tel Aviv. The university is an academic bastion of Israel’s national-religious camp.

Timed to coincide with the Israeli evening television news, the speech was rich in Zionist rhetoric and seemed aimed as much at Israelis as at the Obama administration. Experts said it was unlikely to cause a political earthquake here, since it largely expressed the consensus in Israel.

“It was a balanced speech that the coalition can live with,” said Prof. Efraim Inbar, the director of the Begin-Sadat Center.

Contrary to the expectations of many here, Mr. Netanyahu did not make the threat of a nuclear Iran a focal point, though he described it as one of the greatest challenges facing Israel, along with the global economic crisis and forging of peace.

He called on Arab leaders to meet with him to discuss peace, and for Arab countries and entrepreneurs to help in lifting the Palestinian economy and to engage in regional projects with Israel.

Regarding Gaza, where the militant Islamic movement Hamas holds sway, Mr. Netanyahu said it is up to the Western-backed Palestinian Authority to establish the rule of law there and “overcome” the group.

Mr. Netanyahu announced a week ago that he would deliver a major policy speech, leading to feverish speculation up to the last minute of what it would contain. The Israeli leader spent much of the last week in consultation with political partners and potential rivals and met twice with the country’s experienced and popular president, Shimon Peres.

Mr. Peres said in a statement that the speech was “true and courageous” and that it constituted an opening toward “direct negotiations for both a regional peace and a bilateral peace between Israel and the Palestinians.”