Saeb Erekat, the chief of the PLO Negotiations Affairs Department, being interviewed in his office in the West Bank city of Ramallah. (Luay Sababa, Maan Images)

Palestinians have rejected the Israeli prime minister's conditions for a two-state solution, saying he has "paralysed" the peace process.

Israeli Prime Minister Benjamin Netanyahu, in a major policy speech, accepted the creation of a Palestinian state but only if it was demilitarised.

Palestinian leader Mahmoud Abbas's spokesman said his comments challenged Palestinian, Arab and US positions.

But the US said Mr Netanyahu's stance was an "important step forward".

In a landmark speech, weeks after US President Barack Obama urged him to agree a two-state plan, Mr Netanyahu said the Palestinians must accept Israel as a Jewish state.

He said a Palestinian state must have no army, no control of its air space and no way of smuggling in weapons.

His speech provoked anger among Palestinian officials.

Mr Abbas's spokesman Nabil Abu Rdainah said: "Netanyahu's remarks have sabotaged all initiatives, paralysed all efforts being made and challenges the Palestinian, Arab and American positions," Reuters news agency reported.

Palestinian negotiator Saeb Erekat said the speech "closed the door to permanent status negotiations. We ask the world not to be fooled by his use of the term Palestinian state because he qualified it.

"He declared Jerusalem the capital of Israel, said refugees would not be negotiated and that settlements would remain." Mr Erekat added: "The peace process has been moving at the speed of a tortoise. Tonight, Netanyahu has flipped it over on its back."

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