President Barack Obama declared Thursday that the borders of Israel and a Palestinian state must be based on 1967 lines, likely setting up a new clash with Israeli Prime Minister Benjamin Netanyahu.
In a long-awaited survey of the "Arab spring" of revolts, Obama compared "shouts of human dignity" across the region to America's birth pangs and civil rights struggles, and said the uprisings showed repression would not work.
But Obama did not radically adjust US policy approaches to the uprisings which erupted in Tunisia and raged through Egypt, Syria, Yemen and Bahrain among other states, in a speech watched around the world.
His comments on the stalled Israeli-Palestinian peace process will likely draw most attention, one day before the president meets Israeli Prime Minister Benjamin Netanyahu in the Oval Office.
Obama warned Palestinians that Israel had a right to defend itself and said that the unity deal between Fatah and the radical Islamist Hamas movement posed "profound and legitimate questions" for Israel.
"How can one negotiate with a party that has shown itself unwilling to recognize your right to exist?" Obama said.
He also bluntly told Palestinians that their effort, following the collapse of US-brokered direct talks with Israel last year, to try to win recognition at the UN General Assembly in September would fail.
"Symbolic actions to isolate Israel at the United Nations in September won't create an independent state," Obama said.
But the president also made clear he expected significant concessions in any revived peace process from Israel.
"The borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognized borders are established for both states," Obama said in the speech at the State Department.
Netanyahu has vigorously opposed to a formula that would see Israel withdraw to the borders in place before the 1967 Arab-Israeli war.
Former US congressman Robert Wexler, president of the S. Daniel Abraham Center for Middle East Peace in Washington, told AFP that Obama's declaration amounted to a "moment of truth" for Israel and the Palestinians.
He said Obama had become the first US president to state that the conflict should be ended "with Israel as a Jewish and democratic state and that the 1967 lines -- with agreed territorial swaps -- will be the basis of the resolution."
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Obama also made clear he would support however another Netanyahu red line -- the need for the future Palestinian state to be "non-militarized."
The US president was seeking to convince Americans and the people of the Middle East and North Africa that he had a coherent policy towards the Arab Spring.
He called on Syrian President Bashar al-Assad to lead a transition or "leave," further stiffening the US line a day after slapping new sanctions on the leadership over a fierce crackdown on demonstrations.
Obama demanded a real dialogue between the government and opposition forces in Bahrain, in a showdown that has forced the United States to chose between a key military ally and its support for universal principles.
And the president said that Yemen's President Ali Abdullah Saleh should follow up on his vows to cede power, amid new signs the long time leader was seeking to once again dig in.
In an in-depth survey over five months of revolt stretching from Tunisia to Egypt, Obama said that the uprisings had shown that repression by autocratic leaders could not stifle demands for individual freedoms.
"Those shouts of human dignity are being heard across the region and through the moral force of non-violence," people have achieved more in six months than terrorists have in decades, Obama said.
"It will be years before this story reaches its end. Along the way there will be good days and there will be bad days," Obama said, adding that there would be in some cases, "fierce contests for power."
Obama said that the revolts showed the region must make a choice "between hate and hope, between the shackles of the past and the promise of the future."
Less than three weeks after America hunted down and killed Osama bin Laden, Obama also argued that the Arab revolts proved that Al-Qaeda was losing its struggle for relevance and that its extremist ideology was a "dead end."
Seeking to encourage political change, the president also unveiled a program to offer two billion dollars of debt relief and financing for Egypt and Tunisia, modeled on financial support which underpinned the evolution of post-Soviet eastern Europe.
Specifically, the plan will seek to reorient the European Bank for Reconstruction and Development, which helped rebuild market economies in post-communist Europe, to play a similar role in the Middle East.
The United States will also work with the World Bank, the International Monetary Fund and the African Development Bank to unlock more funding and financing guarantees to encourage democratic reform in the Arab world, officials said.
The rationale of Obama's Arab plan appears to be an attempt to tackle the economic deprivation and miserable prospects of vast swathes of Arab population, which, along with repression of basic rights, triggered a wildfire of protests.