Defense Minister Ehud Barak said Wednesday that east Jerusalem could be the capital of a future Palestinian state. "Our basic position is that Jerusalem is the capital of Israel, but that we can find a formula under which certain neighborhoods, heavily populated Arab neighborhoods, could become, in a peace agreement, part of the Palestinian capital and it will of course include all of the neighboring [Arab] villages around Jerusalem," Barak told Al-Jazeera. He also roundly rejected that the right of return for Palestinian refugees would ever be accepted by Israel. "No Israeli prime minister, from the right or left...will agree to accept even a single Palestinian refugee into Israel based on the right of return," he said. "That was my position when I was prime minister, it was the position of every other prime minister, from Rabin to Peres, from Shamir to Begin, and it will be the position of Israel in the future." Nevertheless, the defense minister said that certain issues relating to Palestinian refugees could be resolved. "It doesn't mean that certain humanitarian issues could not be solved here or there on a very limited scale, but there is no way for Israel to accept the right of return for Palestinian refugees in Israel," he said. Barak denied that Israel was expanding West Bank settlements. "We are not expanding ..we did not announce even a single new settlement," he claimed. "But there is a well-known dispute. We clearly believe with Jerusalem we have the right to build as we need, and we have these settlement blocs, Ma'aleh Adumim, Gush Etzion, Givat Ze'ev, Ariel and several other small ones, where we believe that according to the (US President George) Bush letter to (former prime minister Ariel) Sharon, we have the right to have them, even within a permanent agreement" Barak admitted that Israel would ideally want the security barrier to mark the borders of a future Palestinian state. "It's clearly our recommendation, so to speak, for how it should go. But once we sit down and agree on a border, if it takes a different delineation in a certain sector, we will rebuild the fence in a way that will enable us to have a border, a secure defended border, within which we will have this solid Jewish majority," he said.