"In the case of a future settlement with the Palestinians, this will require an Israeli presence on the eastern side of a prospective Palestinian state," he said.

Netanyahu said that Hamas fighters in Gaza and the Hezbollah movement were supplied with rockets and mortars from neighbouring countries, but did not mention any by name.

"We are surrounded by an ever-growing arsenal of rockets placed in the Iranian-supported enclaves to the north and to the south,'' he said.

'Unacceptable' demand

Saeb Erekat, the Palestinian chief negotiator, on Thursday called Netanyahu's demand to keep troops in the West Bank "absolutely unacceptable."

The West Bank shares its eastern border with Jordan, one of the two Arab nations to have signed a peace treaty with Israel.

Netanyahu's apparent conditions are unlikely to be compatible with the Palestinians demand for a soveriegn state within the two entities pre-1967 borders. 

Palestinians want to create an independent state in the West Bank, Gaza Strip and east Jerusalem with full control of its own borders.

Since Netanyahu took office last year, he has been hesitant to refer to the concept of a Palestinian state and has not outlined how much, if any, of the occupied West Bank he would be willing to give over to Palestinian control.

His comments on Wednesday came amid US efforts to restart the negotiations between the Palestinians and Israel, which were suspended a year ago.

George Mitchell, the US Middle East envoy, was to hold separate talks with Netanyahu and Mahmoud Abbas, the Palestinian president, on Thursday and Friday.

The Palestinians have repeatedly refused to renew peace negotiations unless Israel halts all of its settlement activity in the West Bank and east Jerusalem.

Netanyahu has called a limited and temporary halt to the building of new housing units in the West Bank, but the Palestinians have dismissed the move as not going far enough.