Mr Obama has said a future Palestinian state must be based on the borders that existed prior to the 1967 war.

He said "mutually agreed swaps" would help create "a viable Palestine, and a secure Israel".

But Mr Netanyahu said the pre-1967 borders were "indefensible".

An estimated 500,000 Israelis live in settlements built in the West Bank, which lies outside those borders.

The settlements are illegal under international law, although Israel disputes this.

In a keynote speech on Thursday on the future of US policy in the Middle East, President Obama said: "The United States believes that negotiations should result in two states, with permanent Palestinian borders with Israel, Jordan, and Egypt, and permanent Israeli borders with Palestine.

In many ways the Israeli Prime Minister, Benjamin Netanyahu, should be a man content with his lot. He is on a high-profile visit to Washington where he will be met with a firm handshake and warm words from President Barack Obama.

In a historic address to a joint-session of Congress next week, he can expect to be repeatedly applauded as he describes how his government tirelessly searches for peace.

And at the annual conference of Aipac - the American pro-Israel lobby - he will be feted as a hero and beacon of light in an otherwise hostile region.

But at home, in a dramatically changing Middle East, the Israeli leader appears increasingly out-manoeuvred and out of step with the attempts of others to resolve the frustrating and long-standing stalemate in the Israeli-Palestinian conflict.

* Pressure heaped on Netanyahu

"The borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognised borders are established for both states."

In a statement, Mr Netanyahu's office said he appreciated Mr Obama's "commitment to peace" but that for peace to endure, "the viability of a Palestinian state cannot come at the expense of the viability of the one and only Jewish state".

The statement called on Mr Obama to reaffirm commitments made to Israel by the US in 2004.

"Among other things, those commitments relate to Israel not having to withdraw to the 1967 lines which are both indefensible and which would leave major Israeli population centres in Judea and Samaria beyond those lines," it said.

"Those commitments also ensure Israel's well-being as a Jewish state by making clear that Palestinian refugees will settle in a future Palestinian state rather than in Israel."

One Israeli official travelling to Washington on the plane with Mr Netanyahu said: "There is a feeling that Washington does not understand the reality, doesn't understand what we face."

But Arab League chief, Amr Moussa, on Friday called on President Obama to remain committed to a Palestinian state based on the 1967 borders.

"There must be balance in talk about security of all parties, and not just focusing on the security of Israel without regard for the security of others," he said.
'Arab Spring'

The BBC's Kim Ghattas in Washington says the "agreed swaps" phrase will have to be clarified, though the US will want the Israelis and Palestinians to negotiate this with each other - it is not a detail the US wants to get into at the moment.

She says Mr Obama may be attempting to give the Palestinians something they have long sought in order to convince them not to go to the UN in November and try to declare a Palestinian state unilaterally.
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BBC West Bank map

* Obstacles to peace: Borders and settlements
* Mid-East media lukewarm on Obama speech

The BBC's Wyre Davies in Jerusalem says Mr Netanyahu is coming under increasing international pressure to ease his objections to such a state following the unity deal signed between rival Palestinian groups Hamas and Fatah this month.

Israel's claim to being the only democratic state in the region has also been undermined by the dramatic developments of the "Arab Spring" anti-government uprisings, our correspondent adds.

The push for democracy began with the overthrowing of Tunisian President Zine al-Abidine Ben Ali in January. Egyptian leader Hosni Mubarak was later toppled in Egypt, with demonstrators in Libya currently working to overthrow Muammar Gaddafi.

Similar uprisings are also taking hold in Bahrain, Yemen and Syria.

The Palestinian leadership is split between the Palestinian Authority, which is dominated by the Fatah political faction and governs the West Bank, and the Islamist movement Hamas, which runs the Gaza Strip.

Palestinian Authority President Mahmoud Abbas is due to meet colleagues to decide on the next move, with senior officials saying they have been ordered not to speak to reporters beforehand.

A senior member of Hamas, Foreign Minister Mohamed Awad, told the BBC that tangible steps were needed from the US president, not mere slogans.

"Obama didn't say anything about the suffering of the Palestinian people, who are suffering for more than 63 years," he said.

"He didn't say that the peace process had already reached a dead end... He tried to please everyone but he didn't try to please the Palestinian people."