Israel's Netanyahu says seeking settlements formula

By Allyn Fisher-Ilan

LONDON (Reuters) - Israeli Prime Minister Benjamin Netanyahu said Tuesday he was seeking a formula to enable renewed talks with the Palestinians while permitting Jewish settlers to "live normal lives."

Israel has so far resisted U.S. President Barack Obama's calls to freeze settlement building so that peace talks may resume, and the dispute has led to a rare rift in the Jewish state's relations with Washington.

Netanyahu is due to meet Washington's envoy, George Mitchell, Wednesday in London, where the Israeli leader held talks Tuesday with British Prime Minister Gordon Brown.

Brown, addressing reporters after his hour-long meeting with Netanyahu, voiced support for Obama's efforts to renew stalled Israeli-Palestinian talks, and Washington's call for a settlement freeze.

The British leader called the enclaves built in the occupied West Bank "a barrier to a two-state solution" and said an Israeli building freeze could also move the Jewish state closer to its goal of normalizing ties with the Arab world.

About half a million Israelis live in settlements built in the West Bank and East Jerusalem, territory that Palestinians seek for a state and that was captured in a 1967 war.

"JERUSALEM NOT A SETTLEMENT"

Netanyahu, speaking alongside Brown, rejected any suggestion of curbing Israeli construction in Arab East Jerusalem, which Israel says is part of its indivisible capital, a move not recognized internationally.

"We accept no limitations on our sovereignty ... Jerusalem is not a settlement," Netanyahu said in response to a question. Palestinians want the city as capital of a future state.

Alluding to his talks Wednesday with Mitchell, Netanyahu said he was "seeking to find a bridging formula which will enable us to launch a peace process and enable those residents (settlers) to live normal lives."

Netanyahu, a right-wing leader in office since March, has pledged not to build any new settlements but wants to enable some expansion of existing enclaves to facilitate what he calls "natural growth."

Palestinian President Mahmoud Abbas has insisted on a freeze in all construction as a condition for renewing peace talks with Israel that have been stalled since December.

Netanyahu, briefing reporters traveling with him, accused Palestinians of hardening the terms to hold talks. He insisted that settlements were "one issue in dispute, but not the heart of the conflict."

The Israeli leader said he wanted peace talks "not just to resolve the conflict, but to end it altogether," and called again for Palestinians to recognize Israel as a Jewish state.

Palestinians have recognized Israel but reject demands they ought to define how they view the country's ethnic character.