Lally Weymouth of The Post and Newsweek interviewed Palestinian Prime Minister Salam Fayyad this week in Ramallah. Excerpts:

Q: So you have a plan to create institutions and a state within two years?

We've committed ourselves to a path of completing the task of institution building. [This means] the capacity to govern ourselves effectively in all spheres of government within two years.

So does that mean a central bank, roads?

It means all of that. We now have a monetary authority that is almost like a central bank. We have a public financial system that is well managed. It has won the confidence not only of the Palestinian people but certainly of our donors, including especially the United States.

What are the other institutions?

We are talking about security capability, law and order, including a well-functioning judiciary. Security is not complete unless there is a widespread belief on the part of the public that there is due process. . . .

Additionally, [we need] physical infrastructure to provide services effectively to our people in all areas -- social services, health, education. . . . The idea behind this is to ensure that in a couple of years, it will not be difficult for people looking at us from any corner of the universe to conclude that the Palestinians have a state.

Do you think you should declare a state in 2011?

I said this will be the program of the Palestinian government -- it will commit itself to deliver the state in terms of capacity within two years. That is new in Palestinian politics. Usually, when you have a new government, the norm is for the government to say, here is our plan, a wish list of things -- not a real plan.

People have compared you to the early Zionists, who built institutions.

I keep telling people, Israel was not created in 1948. Israel was proclaimed as a state in 1948. The institutions of the state were there before 1948.

We look . . . to establish Palestine as an independent, democratic, progressive and modern Arab state, with full sovereignty over its territory, the West Bank and Gaza in the 1967 borders, with East Jerusalem as its capital. Palestine will reject violence, commit to coexistence with its neighbors.

You're not a member of Fatah, are you?

No, I'm not.

But do you think of yourself as the Ben Gurion of the Palestinian people?

What I really want is for people to believe that this can happen. . . . We, more than anyone else, need good government. You know, let's get on with it. To the extent that poor governance was used as a disqualifier, by doing it right, this is an instrument of liberation.

In mid-2007, I took over. I say to people, Two years ago I came to you and talked about this. I can understand it if some of you thought, 'Sounds good, but it's not going to happen.' But here we are. This school is there. The water pump is [working]; electricity is on. And just as one school happened, the next one will happen.

How closely do you work with the Israeli government?

There are different layers of dealing with the Israelis. On day-to-day matters, Israel controls the boundaries, the points of access.

If you are talking about Israelis doing things to help us implement this plan, I think the record on this is mixed. To be able to do what we are doing, we need to be enabled to do it. . . . You need to be able to move. It took too long in my view before the Israeli government started to respond by easing restrictions on movement.

. . . What I would say to the Israelis is: 'Do not wait another two years before dismantling all of these restrictions.' . . . Let's create a critical mass of change, positive change on the ground to make it possible for us to move around to implement those projects in the areas where the state of Palestine is going to emerge.

It must include the Jordan Valley and what else?

The so-called Area C [controlled totally by Israel], including the Jordan Valley. We are not able to generate adequate resources because our economy is shackled by these restrictions.

I thought the economy was growing at something like 8 percent?

If not even more. It's very good.

. . . But the question is, is this sustainable?

. . . The state we are looking for is not one that is perpetually dependent on aid. It is not realistic to expect the world to continue to pour cash in.

Do you think the Goldstone report is unfair?

The report was presented to the Human Rights Council in Geneva. I think it should be considered on merit. . . . I think that there really has to be serious consideration of whether or not the community of nations is serious enough about a code of conduct that governs everybody.

Does Abu Mazen and do you have ongoing contacts with Israeli counterparts?

Those contacts were regular up until the re-launching of the political process was considered as requiring certain things to happen -- chiefly among those, a settlement freeze.

But isn't it true that no Israeli prime minister has ever frozen settlements?

Again, this has been taken up as an issue because there is this current prime minister. It might have been a lot timelier to insist on this condition back when Oslo was signed.

Surely [Yasser] Arafat could have accepted then-Prime Minister [Ehud] Barak's offer?

It seems like the Palestinians are always turning down deals. . . . We end up kind of in a corner and it looks like it's our fault it didn't happen. A case in point is what happened in the settlement business.

. . . I think it's important for there to be a freeze. How can people continue to buy into this process if they continue to see more settlement activity coming at the expense of expropriation of Palestinian land?

Are you willing to agree to no right of return [for Palestinian refugees]?

Refugees is one of those final-status issues that were set aside in 1993-4 for a political process to deal with. And I view what is said about that as an effort to have what you might call prior conditions. This is like preempting even a discussion on this issue.