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"There is no substitute for negotiations between Israel and the Palestinian Authority and any unilateral attempts outside that framework will unravel the existing agreements between us and could entail unilateral steps by Israel," Prime Minister Binyamin Netanyahu told a high level gathering of Israeli and American policy makers at the Saban Forum in Jerusalem on Sunday night.
Netanyahu's statement came a day after chief Palestinian negotiator Saeb Erekat announced that the PA may unilaterally ask the UN to recognize a Palestinian state in the Gaza Strip and the West Bank.
Netanyahu stressed that in order to achieve peace, "negotiations must resume immediately," adding Israel was prepared to begin talks "with a generous spirit."
"I want to stress that we are willing to take steps that will help in advancing the peace process, but it must begin, there is no reason to waste time," said the prime minister.
While negotiations were not easy, Netanyahu said, "there is no other way to bring about change."
The prime minister stressed that economic growth in the PA was an important factor in achieving comprehensive peace in the region.
"Economic prosperity is not a substitute for peace, but it can help the process ... Already now one can see how our steps have contributed greatly in easing the movement of Palestinians within the West Bank. Ramallah is in better condition than other cities," said Netanyahu.
"In times of peace we will see towers, not rockets, shooting out of the ground of the Palestinian Authority," Netanyahu said. "A growing Palestinian economy provides thousands of jobs, helping to dry swamps of poverty and despair, and weakening the forces of terror."
The prime minister noted that the "there are also actions by the Palestinians themselves" and said he was "impressed" with the improvement of the Palestinian Authority security apparatuses.
Netanyahu proceeded to name Israel's three central security challenges, which need to be addressed to ensure that peace in the region would be stable and lasting: preventing Iran from developing a military nuclear ability, solving the threat of rockets and missiles fired at Israel, and fortifying Israel's ability to defend itself.
Speaking about the importance of Israel's right to self-defense, Netanyahu stressed that Jerusalem will only make concessions if it can protect itself.
"The Goldstone Report is an explicit threat to regional peace," the prime minister said.
"Reaching peace will involve Israeli concessions, but we will not be able to make those if we cannot protect ourselves," he added.
Netanyahu elaborated on Israel's efforts to diminish civilian casualties during Operation Cast Lead. "A government must do all it can to protect its enemy's civilians, and respond with minimal force, but that minimal force must suffice to halt the assaults," he said.
"Paradoxically, the distorted Goldstone Report, which has brought upon a plethora of sharp legal reactions around the world, might actually bring to a renewed examination of the laws of war, in an era of terror," Netanyahu said.
On the Iranian threat, Netanyahu noted that Iran's nuclear ambitions pose a threat not only to Israel, but also to prospects of peace between Israel and its neighbors. A powerful Iran would continue supporting extreme elements and states in the region, while thwarting Teheran's nuclear plan would weaken Hizbullah, to which Iran recently attempted to send a large arms and munitions shipment.
"The fate of Iran's nuclear plan is a watershed in the history of the early 21st century," the prime minister said, noting the diplomatic efforts by the US, France and Germany to garner international support of preventing Iran's continued nuclear arms race.
Regarding the threat of projectiles being fired at Israel, Netanyahu pointed out that most of the rockets fired from Lebanon and Gaza at long-suffering Israeli locales were short-ranged.
"Peace necessitates any future agreement to include efficient demilitarization steps, and neutralizing the threat of rockets," the prime minister said.
"No less important is to ensure that dangerous arms will not be transferred into the future border of a Palestinian state," Netanyahu added.
"Hizbullah today is in possession of three times the weapons it had at the end of the Second Lebanon War" in 2006, he continued, reminding the forum of Israel's recent seizure of the Iranian-sent Francop ship, containing hundreds of tons of arms intended for Hizbullah.
Tovah Lazaroff contributed to this report