Israeli Prime Minister Benjamin Netanyahu said Wednesday that construction in existing West Bank settlements "does not contradict the aspiration for peace and an agreement."

Addressing the Knesset at a session to mark the 15th anniversary of the assassination of late Prime Minister Yitzhak Rabin, Netanyahu said the partial settlement freeze was a temporary "gesture."

Peace talks, relaunched last month in Washington, quickly reached a deadlock over Netanyahu's refusal to extend restrictions on settlement expansion, despite pleas from the US, UN, EU and Russia. The PLO's Executive Committee on Saturday reiterated its stance that negotiations would not resume until Israel stopped expanding settlements on land which would be a future Palestinian state.

The Associated Press said Wednesday that ground has been broken on 544 new West Bank homes since the partial freeze expired on 26 September.

The prime minister further said a Palestinian state must recognize Israel as a Jewish state. Netanyahu quoted from Rabin's final speech to the Knesset, in which he said "We are convinced that a binational state will not be able to fulfill the Jewish role of the State of Israel, which is the state of the Jews."

Israeli and Palestinian leaders have criticized a recent bill passed by the Cabinet, which would require all those seeking citizenship to swear loyalty to a Jewish state. Palestinian officials said it discriminated against Israel's Palestinian minority, who make up around 20 percent of Israel's population, and threatened the right of Palestinian refugees to return. The bill sparked protests in Tel Aviv, as critics of the amendment described it as fascist and racist.

The prime minister said that Israelis were no longer divided into two opposing camps. Over the last 15 years, "our positions have grown closer together; the gaps have narrowed," he said.

Quoting further from Rabin's speech, Netanyahu said "The land of the prophets, which bequeathed to the world the values of morality, law and justice, was, after two thousand years, restored to its lawful owners -- the members of the Jewish people. On its land, we have built an exceptional national home and state."

The prime minister continued to cite Rabin's call that "The borders of the State of Israel, during the permanent solution, will be beyond the lines which existed before the Six Day War. We will not return to the 4 June 1967 lines. The security border of the State of Israel will be located in the Jordan Valley, in the broadest meaning of that term. 'Jerusalem,' Rabin said in his speech, would be 'united as the capital of Israel under Israeli sovereignty,' and 'will include both Ma'ale Adumim and Givat Ze'ev'"

Palestinian negotiators and the international community insist that a two-state solution must be based on 1967 borders. Ma'ale Adumin and Givat Ze'ev are recognized by the international community as illegal settlements in occupied East Jerusalem, which Palestinians consider the capital of a future state.

Calling for a demilitarized Palestinian state, Netanyahu said "We withdrew from Lebanon and Iran is sitting on the border. We withdrew from Gaza and there, too, Iran is sitting on the border. We cannot let this happen a third time."

"Fundamentalist Islam" had strengthened exponentially, and was the greatest enemy to peace, Netanyahu said, adding that Israel must "join hands with the free world" to face "the enemy of our country."