June 15 (Bloomberg) -- Egyptian President Hosni Mubarak said a call for Palestinians to recognize Israel as a Jewish state, issued by Israeli Prime Minister Benjamin Netanyahu, “aborts” any chance of peace between the two sides.

Netanyahu said yesterday, for the first time, that he would accept a demilitarized Palestinian state provided it recognizes Israel as a Jewish homeland. His comment was welcomed as “an important step forward” by the administration of President Barack Obama.

Mubarak, a U.S. ally, said he told Obama this month that the peace process was being complicated by Netanyahu’s conditions and his rejection of any negotiations over the fate of east Jerusalem, which the Palestinians want as the capital of their future state.

“I told President Obama that solving the crises of the Arab and Muslim worlds goes through Jerusalem,” Mubarak, whose country signed a peace treaty with Israel three decades ago, said today in a speech to Egypt’s Special Forces. “I stressed that the call to recognize Israel as a Jewish state makes the situation more complicated and aborts the chances of peace.”

Arab countries say that a declaration of Israel as a Jewish state precludes talks of a “just solution” to the question of the return of Palestinians who fled their homes in the 1948 and 1967 Middle East wars. They also say such a declaration infringes on the rights of Christian and Muslim Arabs living in Israel.

Arab League

The Arab League, which has endorsed a 2002 initiative seeking land in exchange for peace with Israel, criticized Netanyahu for imposing what it described as “impossible” conditions on the Palestinians.

“We didn’t expect much from Netanyahu because his history is full of elusiveness,” spokesman Abdel Alim Al-Abyad said in remarks carried by Egypt’s state-run Middle East News Agency today in Cairo.

Netanyahu had previously refrained from explicitly endorsing a Palestinian state. His address came 10 days after Obama said in an address aimed at the Muslim world that the creation of a Palestinian state was the “only resolution” for the Arab-Israeli conflict and that he would become personally involved in peacemaking.

Obama also said in the June 4 Cairo speech that the Arab peace initiative “was an important beginning, but not the end of their responsibilities.” He said Arabs should help the Palestinians build institutions “that will sustain their state.”

Mubarak said any calls to amend the Arab initiative to remove demands for the return of Palestinian refugees to territory Israel now views as its own will not find a favorable response in Egypt and the Arab world.

Neither Egypt nor Jordan, the only Arab states with full diplomatic ties with Israel, recognized it as a Jewish state before signing treaties with their neighbor.

Arab media also lashed out at the Israeli leader.

“Netanyahu Threatens Peace Efforts,” read the front-page headline of the Saudi-owned Al-Hayat newspaper. In Lebanon, Assafir newspaper said the Israeli leader’s remarks were more “like a declaration of war than an offer to negotiate.”

Nabil Abu Rudeina, a spokesman for Palestinian Authority President Mahmoud Abbas, said yesterday that Netanyahu’s conditional acceptance of a state, and his stances on Jerusalem and refugees, will “not lead to a just and comprehensive peace.”

Netanyahu is unlikely to change his position unless he was put under more pressure by the Obama administration, former Egyptian Foreign Minister Ahmed Maher said in a telephone interview today.

“This is not even a negotiable start,” he said, referring to the Israeli leader’s conditions.

Netanyahu’s stance makes it crucial for the Palestinians to resolve their divisions and form a united front to “gain the support of the international community,” Maher said.

Talks sponsored by Egypt have so far failed to bridge the gap between the Islamist group Hamas and Fatah, which is loyal to Abbas. Relations between the two rivals have been tense since Hamas’ violent takeover of the Gaza Strip two years ago after a power struggle with Fatah.

The two groups offer major differences on how to achieve Palestinian statehood. Hamas says it believes in armed struggle and refuses to recognize Israel. Fatah says talks are the only way forward.

To contact the reporter on this story: Alaa Shahine in Cairo at asalha@bloomberg.net.

Last Updated: June 15, 2009 12:11 EDT