Israeli Prime Minister Benjamin Netanyahu supports the creation of a Palestinian state on condition it will not be allowed to have its own armed forces.

Mr Netanyahu made his remarks in a speech in which he outlined the main points of Palestinian policy. This is the first time that the prime minister has expressed support for a Palestinian state. His speech appears to be a response to US President Barack Obama's historic speech to the Muslim world earlier this month. Mr Obama is a staunch supporter of a two-state solution to the Israeli-Palestinian issue.

In his speech, Mr Netanyahu said no new settlements would be built in the Palestinian territories, but existing settlements must be allowed to grow. The Palestinians have immediately rejected the Israeli prime minister's speech. Senior Palestinian negotiator Saeb Erekat says it is clear Israel will continue to expand its settlements. He also rejected a Palestinian state without an army. Mr Erekat said: "The peace process has been moving at the speed of a tortoise. Tonight, Netanyahu has flipped it over on its back."

The White House has welcomed Mr Netanyahu's speech as an "important step forward".