Prime Minister Binyamin Netanyahu told U.S. envoy George Mitchell Thursday evening that Israel is willing to discuss the creation of a Palestinian Authority state as the U.S. desires but only if the PA recognizes Israel as a Jewish state.

"Israel expects the Palestinians to first recognize Israel as a Jewish state before talking about two states for two peoples,” he said.

The Fatah-led PA based in Ramallah has agreed to recognize Israel, but has not recognized Israel as Jewish. The Hamas-led breakaway PA in Gaza refuses to recognize Israel at all, terming the country, “the Zionist entity.”

Netanyahu also told Mitchell that any peace agreement between Israel and the PA or other Arab entities must provide for Israel's security needs.

PA Chairman Mahmoud Abbas has insisted that the new Israeli government agree to the creation of a PA state before resuming negotiations. According to the PA-based paper Al-Ayyam, Abbas will also demand that Israel stop building homes in Jewish communities in Judea and Samaria and that illegally built Arab houses in Jerusalem be allowed to remain.

The PA is interested in “final status” talks that address issues such as control of the Temple Mount, the borders of a PA state, and the fate of millions of foreign Arabs who claim descent from those who fled Israel during the War of Independence. Israeli officials have expressed interest in beginning by strengthening the PA and making it a viable economic and political entity and only afterwards resuming final status negotiations.