For the first time, Israeli Prime Minister Benjamin Netanyahu on Sunday referred to a "two-state solution" in reference to efforts to bring peace to the Middle East.

"We have achieved a national agreement on the formula of two states for two peoples," said the prime minister during the weekly cabinet meeting of the Israeli government.

Only last month, in a public speech, Netanyahu allowed the possibility of a demilitarised Palestinian state without mentioning a "two-state solution." Such a solution would form an independent Palestinian state from areas including those under Israeli occupation.

Netanyahu's comments came as part of a review of his first 100 days in office, with that mark set to be reached on Thursday. He said he did not have a single day of regret about his time in office so far.

But, even as he allowed the possibility of a two-state solution, he continued his demands for concessions from the Palestinians, who control the West Bank and Gaza Strip.

"The Palestinians have to recognise the state of Israel as the state of the Jewish people," he said. "Israel needs and will get defendable borders and that implies also the complete demilitarisation of the Palestinian territories."

Meanwhile, Israel's defence minister said yesterday he hopes to reach a "wider understanding" on regional peace when he meets Washington's Mideast envoy this week, but gave no indication the sides have resolved a dispute over colony construction in the West Bank.

Defence Minister Ehud Barak, Israel's point man on colonies, is heading to London today in hopes of breaking the impasse marring Israel's relations with its most important ally. It will be Barak's second meeting with US envoy George Mitchell in less than a week.

Barak said the goal of his meeting will be "to work toward a wider understanding between us and the US ... and translate it into a shared path acceptable to us, to the US and to the other sides, to make progress on the diplomatic process with the Palestinians, and to opening a door to further moves."

Barak, however, made no mention of the dispute over colony construction, the issue that is expected to dominate today's discussions.

The Obama administration says Israel must halt all construction on lands captured by Israel in the 1967 Mideast war and claimed by the Palestinians for a future independent state. Israel wants to keep building in existing colonies to accommodate what it calls "natural growth" in the colonist population.

Last month, in a move at least partly aimed at easing tensions with Washington, Prime Minister Benjamin Netanyahu expressed support for the first time for the creation of a Palestinian state in a policy speech. He said the Palestinian state would have to be demilitarised and recognise Israel as the state of the Jewish people.

Yesterday, Netanyahu said at the weekly meeting of his Cabinet, that he had created a "national consensus around the term 'two states for two peoples.'"

The Palestinians have rejected Netanyahu's conditions.

They say recognising Israel as a Jewish state would compromise Israel's one-fifth Arab minority and undermine the claims of Palestinian refugees who lost their homes when Israel was created in 1948.
Red Sea 'not a submarine base'

Israel has no plan to station submarines in Eilat, a defence official said yesterday, playing down speculation the Red Sea port could become a forward base for secret naval operations against Iran.

An Israeli Dolphin-class submarine took part in a drill off Eilat last week, after sailing from the Mediterranean via the Suez Canal - the first such voyage for the secret craft and a sign of Israel's growing strategic reach, defence sources said.

Witnesses said the vessel docked briefly at Eilat's naval base before departing. But an Israeli defence official said there would be no permanent deployment there of the German-made submarines- of which Israel has three, with two more on order.