Prime Minister Benjamin Netanyahu on Wednesday rejected the Opposition's accusations during a Kadima-initiated Knesset plenum discussion on the subject "A failing and flip-flopping prime minister on the political and economic fronts."

At the end of the discussion, 51 Knesset members voted in favor of the prime minister's announcement and 39 voted against it. Labor ministers abstained.

Addressing the Palestinian demand to remove the separation fence, the prime minister clarified that it would "remain where it is. It won't be dismantled."

He spoke of his support for the fence. "As the finance minister I told (former Prime Minister Ariel) Sharon, despite the fact that we were in the midst of a serious financial crisis, 'Arik, there will be no problem with the budget for the fence. The budget will always precede the construction…'

"Today I hear people say that because it's quiet the fence can be removed. On the contrary, my friends. It's quiet because we have the fence, and this is in addition to the IDF's activity, of course. And I must add cautiously that there is a certain improvement in the performance of the Palestinian security organizations, and we welcome it."

Netanyahu presented the principles needed for solving the conflict with the Palestinians: Recognizing Israel as a Jewish state, solving the refugee problem outside Israel, effective demilitarization arrangements and an international recognition of them.

"These are the foundations of the national agreement for peace," said Netanyahu. "We demand an international recognition of the arrangements. We are required to make concessions and we want to ensure that the State of Israel is safe."

The prime minister's remarks sparked a row among Arab Knesset members, and MK Mohammad Barakeh was removed from the auditorium by Knesset Speaker Reuven Rivlin.

Addressing the Iranian threat, the prime minister noted with satisfaction that the mask has been torn off Iran's face. "In the field of security I have said before the elections and I'm saying this again: Our main problem is the Iranian threat on us, on the region and on peace.

"During the government's tenure, something happened which is significant for the long run – uncovering the true colors of the Iranian regime. A brutal regime oppressing the people. This nation wants to rid itself of the burden of tyranny, and if it is released many forces would be released for development.

"Hardly anyone supported this regime in the international community, but there were exceptions. Excluding Syria, Hamas and Hezbollah who sent their greetings, encouragement and support. What else did they send there during the oppression? It's part of the same method, the same tyranny and hypocrisy, and the mask has been torn off their face at once. This is an important thing. Something important has happened."

Netanyahu thanked the MKs for approving the State Budget, "and also those who voted against it." According to the prime minister, "We have not had a budget for a long time. Today we don’t just have a budget but a biennial budget, which I must tell you, people are interested in. There are those who suggest making it permanent, I'm not being swept away, but had we not passed it now we would have started immediately, now, the 2010 budget."

At this stage, MK Shlomo Molla (Kadima) lashed out at Netanyahu, saying "you hurt the weak populations."

'Refugee problem won't be solved inside Israel'

The prime minister spoke of forming an agreement on the foundations of peace, saying that it should be obvious that the Palestinians who are seeking their own state should recognize Israel as the Jewish people's nation state.

"This stems from the simple principle, that the refugee problem will not find its solution within the borders of the Jewish state," Netanyahu said, adding that this was important so that "when we sign a peace agreement there will be no more demands against the State of Israel, not for the entry of refugees and not for regions in the State of Israel. The end of the conflict is the end of demands.

"We do not want to repeat the mistakes and tragedies of Gaza, we do not want another Hamastan and another Hezbollahstan. The main thing, beyond questions of legitimacy and recognition, is demilitarization. The demilitarization we are asking for is effective demilitarization, not demilitarization on paper, not demilitarization which will not stand the test of time.

"These are basic things which almost all MKs agree on, and I think we can reach such agreements or such arrangements if we insist on them. In general, all the things I have said are things that have been said, but we have grouped them together because this is a very basic thing, without it peace is really impossible… I am talking differently. I am saying things as they are."

Livni talks of 'days of despair'

Opposition Chairwoman Tzipi Livni was next to take the stage, slamming the prime minister. "A little over 100 days have passed since the establishment of a government in Israel. Anywhere else in the world these are days of hope, a renewal of implementing the promises made before the elections. Only in Israel these are days of despair."

Arab MKs who left the auditorium during Netanyahu's speech returned to the hall to listen to Livni.

"This Knesset has approved the establishment of a overblown and wasteful government, but in practice there is no government in Jerusalem in any field, because since the establishment of the government all its leader engages in is survival."

She criticized the enactment of laws, "which degrades any value we believe in: A law for each MK. A financial crisis – you spoke of a guiding hand, we see a paying hand… Strong people are willing to pay more because they still care about the weak."

Addressing the peace process, the opposition leader said that "the people want to reach an agreement and you are trying to avoid it. The State of Israel needs a border, the people of Israel want a leadership which will set the border, and the people are praying for a brave enough leadership to make these decisions – for it. And there is no such leadership in Israel.

"Don't point a finger at your coalition, don't explain in English and French – in closed forums as you do – that it’s not you, it's them: 'My partners, they are the radical ones.' As if you are not the one who chose this coalition… With you, the consensus is always around fear."

She turned to Netanyahu, "You are good with marketing in Hebrew, but it doesn’t work in other languages."

'Where are you leading us?'

Earlier during the meeting, Kadima faction Chairwoman Dalia Itzik attacked Netanyahu for the rift created between Israel and the United States. "We placed our most precious asset in your custody – the close, intimate relationship and exceptional cooperation with the United State of America. Now, I look at the four months of your term and am stunned. Given the credentials of such an educated, sophisticated, and experienced person, how could you fail so?" she said.

"Though I am in the opposition, I don't have any interest or joy in gloating over the failure of a prime minister. Your failure is our failure," she said.

"It takes a certain amount of talent to take the circumstances under which you started your term and turn them into the situation to which you have brought Israel within 113 days. And we still don't know where you're going? Where are you going? What are your plans? Do you have plans? Where are you leading us?" she charged.

"Sir," continued Itzik, "it seems to me that you did not really sketch out a plan, a path, a direction from the beginning. Ten years of waiting patiently to take office again is worthy of praise. Now that you are here, could it be that you don't know what to make of it?"

"How did Israel become within 113 a peace rejecter in the eyes of the world? Could it be that we gave the steering wheel to a captain that has forgotten or lost his navigation equipment? If you came unprepared, we forgive you. Start anew."

MK Ofir Akonis (Likud) responded, "I say from here, from the Knesset in Jerusalem to the leaders of the free world led by the president of the United States: Mr. President, enough is enough. The Israelis and Jews of the world know Jerusalem is our eternal capital, and are united around our sovereign rule of the city. I also call upon Ms. Livni to let her voice be heard and the join the broader Israeli consensus."

In her speech, Itzik leveled harsh criticism at Netanyahu's conduct since taking on the premiership: "When I look at the Israeli government, I can't help but think of the term 'it's all opposite.' Everything is jumbled, twisted, bitter, quarrelsome, forced, visionless, lacking enthusiasm. Have you looked recently at the ministers' faces? Look at them. They all look sad, frustrated, and uncomfortable."

Itzik stopped suddenly in the middle of her speech and said to the prime minister, "Sir, I would appreciate it if you would look at me. I respect you. When you were speaking, I always looked at you. It's very insulting."

Itzik added, "There seems to be a certain element of disrespect here, and I don't disrespect him. I wrote this speech and thought about each word, believe me. I have a lot of respect for you. Thank you."

Netanyahu responded, "Sometimes I'm capable of doing more than one thing at the same time."