Israel cautiously applauded US President Barack Obama's sweeping speech in Cairo Thursday, even as it was gearing up for tough negotiations with the Americans in the coming days over how to transform some of the rhetoric into a program. During the 56-minute address to some 3,000 invited guests at Cairo University, Obama reconfirmed and pledged continued US support for Israel, but was uncompromising in his demand for the establishment of a Palestinian state, and called for a "stop to settlements." "For decades, there has been a stalemate: two peoples with legitimate aspirations, each with a painful history that makes compromise elusive," Obama said, adding that it is "easy to point fingers." "But if we see this conflict only from one side or the other, then we will be blind to the truth: the only resolution is for the aspirations of both sides to be met through two states, where Israelis and Palestinians each live in peace and security," he said. Regarding the settlements, Obama - to perhaps the loudest applause he received during his address - said, "The United States does not accept the legitimacy of continued Israeli settlements. This construction violates previous agreements and undermines efforts to achieve peace. It is time for these settlements to stop." In a speech whose primary goal was reconciliation with the Muslim world, Obama quoted from the Koran for emphasis, and called for a "new beginning between the United States and Muslims." He said that together, Americans and Muslims could confront violent extremism across the globe and advance the search for peace in the Middle East. "This cycle of suspicion and discord must end," he said. "And I consider it part of my responsibility as president of the United States to fight against negative stereotypes of Islam wherever they appear." However, he said, "change cannot happen overnight." Obama's remarks were broadcast on all radio and television outlets in Israel, and with Arabic voice-over translations by satellite stations Al-Arabiya and Al-Jazeera, Egyptian TV and Hizbullah's Al-Manar. The speech was not shown in Iran, where the government jammed signals to block satellite owners from watching. Senior Israeli government sources said Thursday evening that they had been apprised beforehand of what Obama was going to say both about two states and about the settlements. Negotiations with the Americans over this issue will continue on Tuesday with the arrival of US special Middle East envoy George Mitchell. While the officials did not criticize the president for his comments on the Israeli-Palestinian issue, they did say Jerusalem had expected Obama to take a stronger stand regarding Iran's nuclear program, at least saying what he has already said in the past - that the American engagement with Teheran would not be unlimited in time, but would be reassessed by the end of the year, and that the US was not taking any option off the table in dealing with Iran. "It is clear to all concerned that when it comes to nuclear weapons, we have reached a decisive point," he said of Iran. "This is not simply about America's interests. It is about preventing a nuclear arms race in the Middle East that could lead this region and the world down a hugely dangerous path." Obama also said he felt that any nation, including Iran, "should have the right to access peaceful nuclear power if it complies with its responsibilities under the Nuclear Non-Proliferation Treaty. That commitment is at the core of the treaty, and it must be kept for all who fully abide by it." Some four hours after the speech, the Prime Minister's Office issued a statement saying the government "expresses hope that President Obama's important speech in Cairo will lead to a new period of reconciliation between the Arab and Muslim world, and Israel." "We share Obama's hope that the American efforts will signal the opening of a new era that will bring about an end to the conflict, and [lead] to pan-Arab recognition of Israel as the Jewish state living in peace and security in the Middle East," the statement read. "Israel is obligated to peace and will do as much as possible to help expand the circle of peace, while taking into consideration its national interests, the foremost of which is security." The somewhat low-key response was crafted after Prime Minister Binyamin Netanyahu consulted with the members of the inner cabinet who are currently in the country: ministers Dan Meridor, Moshe Ya'alon and Bennie Begin, all from the Likud. The two other members, Defense Minister Ehud Barak (Labor) and Foreign Minister Avigdor Lieberman (Israel Beiteinu), are currently abroad, but also issued statements praising the speech. Obama, during his long-awaited speech on relations between the US and the Muslim world, placed "the situation between Israelis, Palestinians and the Arab world" as the second major source of tension between the US and the Muslim world. "America's strong bonds with Israel are well known. This bond is unbreakable. It is based upon cultural and historical ties," he said. He also spoke of the history of the Jewish people and their pursuit of a Jewish homeland. "Around the world, the Jewish people were persecuted for centuries, and anti-Semitism in Europe culminated in an unprecedented Holocaust," Obama said. "Tomorrow, I will visit Buchenwald, which was part of a network of camps where Jews were enslaved, tortured, shot and gassed to death by the Third Reich. Six million Jews were killed - more than the entire Jewish population of Israel today. "Denying that fact is baseless, ignorant, and hateful," he told the Arab and Muslim world, in which Holocaust denial is rampant. "Threatening Israel with destruction - or repeating vile stereotypes about Jews - is deeply wrong, and only serves to evoke in the minds of Israelis this most painful of memories while preventing the peace that the people of this region deserve. "On the other hand," Obama went on, "it is also undeniable that the Palestinians... have suffered in pursuit of a homeland. For more than 60 years, they have endured the pain of dislocation. Many wait in refugee camps in the West Bank, Gaza and neighboring lands for a life of peace and security that they have never been able to lead. "They endure the daily humiliations - large and small - that come with occupation," he said. "The situation for the Palestinians," he stressed, "is intolerable." Asserting that "the Palestinian Authority must develop its capacity to govern, with institutions that serve the needs of its people," he also cited the Middle East Quartet's conditions for Hamas: that the terrorist group must "put an end to violence, recognize past agreements and recognize Israel's right to exist." "At the same time, Israelis must acknowledge that just as Israel's right to exist cannot be denied, neither can Palestine's," he said. "It is time for these settlements to stop." Obama demanded that Israel "live up to its obligations to ensure that Palestinians can live, and work, and develop their society." And then, in a criticism of Israel's Gaza policy, Obama added, "Just as it devastates Palestinian families, the continuing humanitarian crisis in Gaza does not serve Israel's security; neither does the continuing lack of opportunity in the West Bank. "Progress in the daily lives of the Palestinian people must be part of a road to peace, and Israel must take concrete steps to enable such progress," he said. The president was adamant in his call for the Palestinians to end terrorism. "Palestinians must abandon violence. Resistance through violence and killing is wrong and does not succeed," he said. "Violence is a dead end. It is a sign of neither courage nor power to shoot rockets at sleeping children, or to blow up old women on a bus," he said. "That is not how moral authority is claimed; that is how it is surrendered." In a gesture, Obama conceded at the beginning of his remarks that American tension with the Muslim world "has been fed by colonialism that denied rights and opportunities to many Muslims, and a Cold War in which Muslim-majority countries were often treated as proxies without regard to their own aspirations." Obama said some people in the United States viewed Islam as hostile to Western countries, but that this was not the case, despite fear and mistrust. At the same time, he said the same principle must apply in reverse: "Just as Muslims do not fit a crude stereotype, America is not the crude stereotype of a self-interested empire." He touched lightly on one issue that former US president George W. Bush had made a centerpiece of his second term - the spread of democracy. Obama said he had a commitment to governments "that reflect the will of the people." And yet, he said, "no system of government can or should be imposed upon one nation by any other." "There is so much fear, so much mistrust. But if we choose to be bound by the past, we will never move forward," he said. The US president also devoted sections of the address to women's rights and religious freedom. "A woman who is denied education is denied equality," he said. "It is no coincidence that countries where women are well educated are far more likely to be prosperous." Obama ended his speech by quoting from the Koran, the Talmud, and the New Testament, concluding that "the people of the world can live together in peace." AP contributed to this report.