Although Hillary Clinton, the US secretary of state, said on Friday that the negotiations should proceed without preconditions, Netanyahu mentioned several requirements during Sunday's cabinet meeting, according to Mark Regev, a government spokesman.
Netanyahu said that a discussion of a future Palestinian state along the borders that existed before the 1967 Six-Day War could come only after security issues, such as whether such a state would be demilitarised, were settled.
"We are discussing a peace agreement between Israel and a demilitarised Palestinian state," he said.
He also said the Palestinians must recognise Israel as a Jewish state and that he would like to maintain an Israeli military presence in the Jordan valley area of the West Bank, Regev told Al Jazeera.
He did not address the coming expiration, on September 26, of a freeze on Israeli settlements in the occupied West Bank. Such settlements are illegal under international law.
Pre-1967 borders and Israeli settlements are the most sensitive issues for the Palestinians, and Saeb Erekat, the chief Palestinian negotiator, has said a failure to halt settlements will derail talks.
The Arab League gave its backing to direct negotiations as long as "measures and conditions" were met. For the Palestinians, this primarily means the halt of settlement construction and an agreement on pre-1967 borders.
Clinton's statement on Friday that talks proceed without preconditions angered Mahmoud Abbas, the Fatah politician and president of the Palestinian Authority, according to a report in the Asharq al Awsat newspaper.
A spokesman for the Palestinian government was not immediately available to comment on the remarks attributed to Netanyahu.
A statement released on Friday by the Middle East negotiating group known as the Quartet - made up of the United States, United Nations, Russia and European Union - said that negotiations should "lead to a settlement ... that ends the occupation which began in 1967".