"By renouncing the dream of an independent Palestine, they would become fellow citizens with their Jewish neighbours and then demand equal rights within a democracy.
"In this nonviolent civil rights struggle, their examples would be Mahatma Gandhi, Martin Luther King Junior and Nelson Mandela."
Carter, who commented that a two-state solution was "clearly preferable", said that Palestinian leaders had also considered the current demographics of Israel and the occupied Palestinian territories.
"Non-Jews are already a slight majority of total citizens in this area, and within a few years Arabs will constitute a clear majority," he said.
The 39th US president had been travelling in the region as a member of the Elder's Panel, a group of noted international diplomats working to address humanitarian issues.