“The truth is that in the area of our homeland, in the heart of our Jewish Homeland, now lives a large population of Palestinians. We do not want to rule over them. We do not want to run their lives. We do not want to force our flag and our culture on them. In my vision of peace, there are two free peoples living side by side in this small land, with good neighbourly relations and mutual respect, each with its flag, anthem and government, with neither one threatening its neighbour’s security and existence,” said the Israeli prime minister Benjamin Netanyahu on Sunday.

During his speech at Bar-Ilan University, for Mr Netanyahu to utter the words “Palestinian state” was a major concession, though he clearly preferred the word “area” in preference to “state”. Mr Netanyahu conceded that the Palestinian people could have their own area only if it could be guaranteed to be a demilitarised area.

“Any area in Palestinian hands has to be demilitarisation [sic], with solid security measures. Without this condition, there is a real fear that there will be an armed Palestinian state which will become a terrorist base against Israel, as happened in Gaza.”

Mr Netanyahu added: “We cannot be expected to agree to a Palestinian state without ensuring that it is demilitarised. This is crucial to the existence of Israel — we must provide for our security needs.

“This is why we are now asking our friends in the international community, headed by the USA, for what is necessary for our security, that in any peace agreement, the Palestinian area must be demilitarised. No army, no control of air space. Real effective measures to prevent arms coming in, not what’s going on now in Gaza.”

On the issue about which the Obama administration has been unequivocal — that Israel must bring a halt to all forms of settlement growth in the West Bank — Mr Netanyahu merely reiterated earlier commitments: “We have no intention to build new settlements or set aside land for new settlements. But there is a need to have people live normal lives and let mothers and fathers raise their children like everyone in the world.” In other words, Israel will continue to allow what it describes as the “natural” growth of settlements.

In Haaretz on Monday, Akiva Eldar wrote: “The prime minister’s speech last night returned the Middle East to the days of George W Bush’s ‘axis of evil’. Benjamin Netanyahu delivered a patriarchal, colonialist address in the best neoconservative tradition: The Arabs are the bad guys, or at best ungrateful terrorists; the Jews, of course, are the good guys, rational people who need to raise and care for their children. In the West Bank settlement of Itamar, they’re even building a nursery school.

“No empathy for the refugees from Jaffa who lost their entire world, not a word for the Muslim connection to Jerusalem — neither a fragment of a quote from the Quran, nor a line of Arabic poetry.

“Netanyahu’s provincial remarks were not intended to penetrate the hearts of the hundreds of millions of Al Jazeera viewers in the Muslim world. Instead, he sought to appease Tzipi Hotovely, the settler Likud politician, and make it possible to live peaceably with the settler foreign minister Avigdor Lieberman. Netanyahu’s demand that Palestinians recognise Israel as the state of the Jewish people didn’t even leave him an opening for forging reconciliation with the Arab citizens in the country.”

In an analysis for BBC News, Jeremy Bowen said it was clear that Mr Netanyahu was acquiescing to American pressure.

“The Israeli prime minister’s body language suggested that he was doing it under diplomatic duress.

“One Israeli journalist observed that he looked like someone vomiting up the words ‘Palestinian state’.

“That was because the idea, however hedged around with conditions, is anathema to his ideology.

“Mr Netanyahu, who understands communication via the TV camera, might also have chosen to emphasise a certain distaste for what he was doing, to send a message to his own supporters that he did not like it, and he was going to make sure that they would be talking about Israel’s vision of Palestinian independence, and not the Palestinians’ own.”

The Jerusalem Post reported: “Some of Palestinian Authority president Mahmoud Abbas’s top advisers accused Netanyahu of ‘burying the peace process’ and said the ball was now in the court of US president Barack Obama.

“‘Netanyahu’s speech is a blow to Obama before it’s a blow to the Palestinians and Arabs,’ an Abbas aide said. ‘It’s obvious, in the aftermath of this speech, that we are headed toward another round of violence and bloodshed.’

“Abbas’s office issued a terse statement in which it accused Netanyahu of destroying efforts to achieve peace in the region.

“‘The speech has destroyed all initiatives and expectations,’ the statement said. ‘It has also placed restrictions on all efforts to achieve peace and constitutes a clear challenge to the Palestinian, Arab and American positions.’”

Mr Netanyahu’s speech elicited negative responses all across the Arab world, with Syria saying that the Israeli prime minister’s plan “contains everything but peace.”

“The statements that were made were like placing the cart before the horse,” said an editorial in the official Syrian newspaper Tishrin. “This is the principle that always guides Israel when approaching the Zionist-Arab conflict. The Israelis see themselves as victims rather than the aggressors.”

The Egyptian president Hosni Mubarak echoed the Syrian view, saying that Mr Netanyahu’s demand that Palestinians recognise Israel as the state of the Jewish people “scuttles the chances for peace.”

Mr Mubarak made the comments in a speech to Egyptian army commandos, the state-run Mena news agency reported.

The president said he had informed Mr Netanyahu of his position, according to which Israeli-Palestinian peace talks must be renewed from the point at which they were broken off, and that the call for recognition of Israel as a Jewish state would only complicate matters.

“You won’t find anyone to answer that call in Egypt, or in any other place,” Mr Mubarak said. He added that the problems in the Middle East would not be solved until the Israeli-Palestinian conflict was resolved. “The solution to the crises in the Arab and Muslim world lies in Jerusalem,” he said.

In Jordan, the pro-government Al-Rai daily ran an editorial titled, “Netanyahu offered rotten merchandise. Nobody will buy it.”

Lebanese president Michel Suleiman described Netanyahu’s speech as “intransigent when it comes to dealing with peace or regarding the solution for Palestinian refugees,” while Saudi Arabia’s state-run Al-Nadwa daily said “every paragraph of Netanyahu’s speech makes us more pessimistic.”

The Arab League’s undersecretary general for Palestinian affairs, Mohammed Sobeih, said the speech might satisfy “extremists in Israel” but was “too far from what peace needs.”

The Associated Press said: “Former US president Jimmy Carter, who brokered the landmark 1979 treaty between Egypt and Israel, said his experience in the region shows that no differences are insurmountable. But he criticised key points in the speech — Netanyahu’s intention to keep all of Jerusalem and his demand for recognition of Israel as a Jewish state, which Carter said would make it hard for Obama to rally Arab support.

“Carter reserved his harshest words for settlements. ‘If Israeli continues to expand the settlements,’ he said, ‘then the prospects for peace will be greatly diminished, if not made almost impossible.’”