The Israeli-Palestinian conflict is more of an existential threat to this nation than a nuclear Iran, former Shin Bet Chief Yuval Diskin said on Wednesday night.

To solve the conflict, Israel must immediately freeze Jewish building in the West Bank outside the settlement blocs, and pledge to release all Palestinian prisoners at the end of the negotiations, Diskin said at the 10th anniversary event hosted by the Geneva Initiative.

“The implications of the absence of a solution to the Israeli-Palestinian conflict is more existential than the Iranian nuclear issue,” Diskin told an audience at the Tel Aviv Museum of Art.

Sources close to Prime Minister Binyamin Netanyahu slammed Diskin and his comments, saying that “anyone who thinks that the Palestinian threat is greater than the threat of a nuclear bomb in the hands of Iran, which calls for the destruction of the Sate of Israel is divorced from reality and lacking any strategic vision.”

According to the sources, Netanyahu will continue to work to remove the Iranian nuclear threat, and simultaneously try to move forward to a diplomatic solution with the Palestinians; but only one that will maintain Israel’s security interests.

Netanyahu will be influenced by neither “recycled statements, nor the righteous preaching that flows from the personal frustration of someone who wanted to be appointed the head of the Mossad, but did not get the job,” the sources said.

In his speech, Diskin outlined a plan to foster an atmosphere that could lead to a two-state solution.

“First, most immediate and more important than anything, is to immediately freeze all the settlements outside of the big settlements blocs,” Diskin said to a round of applause in the large, packed auditorium, which included diplomats and politicians.

Such a step would help restore faith that something has changed and it would also stop West Bank settlement growth from getting out of control, Diskin said.

Second, Palestinian prisoners should be released at the final stages of negotiations, even though this is an emotional point for the Israeli public.

“A peace agreement justifies even the release of Palestinian prisoners, but this should be done only at the final stages,” said Diskin.

This kind of release differs from the “cynical political” deal reached now, in which Palestinian prisoners were released to allow for continued settlement building, Diskin said.

“We must change the Israeli and Palestinian public attitude from a feeling that there is only a past, to one of belief that there is also a future,” Diskin said.

“We have to believe in the path and our leaders have to be clear they support two states for two people,” Diskin said.

“There has to be a dramatic change in Israel’s political map, in which there will be a new coalition composed of parties that support peace,” he added.

Palestinian Authority President Mahmoud Abbas must speak of peace in the Knesset and Israeli leaders should speak before Palestinian Fatah politicians in Ramallah, Diskin proposed.

One also has to look to Israel’s neighbors for help in the resolution of the conflict, Diskin said.

Jordan and Egypt, he said, should be brought into the negotiations at an early stage and this “is critical for its success and its future,” he said.

It is important for the US to strengthen its ties with the new Egyptian government, Diskin said.

There have been dramatic changes in the region, brought on by the Arab spring and the threat of a nuclear Iran, that require Israel to think of a new regional strategy in which it re-evaluates both the dangers and the opportunities, including creating closer ties with Jordan and Egypt, Diskin said.

He dismissed those on the Israeli Right who call for a Palestinian state in Jordan.

Jordan cannot be the homeland for the Palestinian people for the same reason that Uganda cannot be the homeland for the Jewish people, said Diskin.

UN Special Coordinator for the Middle East Peace Process, Robert Serry, said that “the international community is becoming increasingly impatient and that is why we stand to lose much if the talks fail again.”

He reminded the Israeli public that “there is a partner in Ramallah” and that now was the time to capitalize on the Arab League Initiative to resolve the conflict that promised to normalize relations with Israel.

Serry said that this nine month round of direct talks between Israel and the Palestinians, which US Secretary of State John Kerry hopes to boost in his visit here on Thursday and Friday, could be the last chance to reach an agreement for a two state solution.

Herb Keinon contributed to this report.

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