"Two states living side by side in peace and security - my guess is they'll discuss that, and it's an issue they'll continue to work through," an official said.

Settlements freeze

Obama, who has promised to make Israeli-Palestinian peacemaking a high priority since taking office in January, will also stress US opposition to continued construction of Jewish settlements on occupied land in the West Bank.

"The Israelis have obligations related to settlements and outposts," an official said. "It will certainly be a topic for them to discuss."

Netanyahu has resisted calls to freeze settlement expansion on land Israel captured in the 1967 Arab-Israeli war.

The international community considers the settlements illegal, a position disputed by Israel.

Ehud Barak played down Netanyahu's opposition to the creation of a Palestinian state, saying that the prime minister will finally accept a formula of "two peoples living side by side in peace and with mutual respect".

Barak said he is certain the right-wing government "will be ready to take difficult decisions" to achieve a compromise when the day comes.

'New approach'

Two Likud party colleagues, however, said that Netanyahu would refuse on his US visit to back a Palestinian state.

Netanyahu will propose instead a joint Israeli-Palestinian group to study ways to bring peace, Yisrael Katz, transport minister, said on Saturday.

"Netanyahu will oppose any creation of an armed Palestinian state on Israel's borders, which would endanger Israel's security," the minister told reporters.

In response to calls from Obama to accept a Palestinian state, Netanyahu will advocate in Washington the "setting up of a joint Israeli-Palestinian commission with a view to an initiative on peace in the Middle East," Katz said without giving details.

Ophir Akunis, another senior member of the right-wing Likud party, also said Netanyahu will refuse to accept the formation of a Palestinian state, public radio reported.

Netanyahu "will not make a commitment to Washington on the creation of a Palestinian state, which would undoubtedly become a 'Hamastan'," Akunis was quoted as saying, referring to Islamist Hamas movement which controls the Gaza Strip and favours armed  struggle against Israel.