The return of Palestinian refugees to Israel should not be ruled out as a subject for negotiation, Tony Blair said in response to Prime Minister Benjamin Netanyahu's recent policy speech.

In his speech at Bar-Ilan University on Sunday, Netanyahu endorsed the concept of a demilitarized Palestinian state for the first time, but he attached new strict conditions, including a demand that the Palestinians recognise Israel as a Jewish state before negotiations even begin.

In an interview with Sky News, published Monday, the Quartet's envoy to the Middle East said "I never know what people mean by this. If people mean this is a way of having the debate about the right of return of refugees then I think that's best done in the negotiation."

Blair, who is visiting Gaza, also told Sky News that Israel's blockade on the Hamas-ruled territory has to be replaced by something new.

"Unless there's a real change on the ground, where people are being offered some prospect of hope and the chance to lead a different life - then the politics, two-state solution or not, is not going to work," he was quoted by the British news network as saying.

Last month Blair said there was no workable alternative to a two-state solution.

"The opportunity is there," Blair said at the time, "but it won't remain if not seized. As President (Barack) Obama has recognized, this is the right time to seize it."

The Mideast envoy said the best way to go is to try to make it clear to the Palestinians that negotiations will result in genuine statehood and to the Israelis that there can be "an agreed program for reform of the Palestinian security sector."