Incoming Prime Minister Benjamin Netanyahu pledged on Monday to make every effort to achieve peace with Israel's neighbors and the Arab world, but again made no mention of Palestinian aspirations to statehood.

The government I am forming will do its utmost to achieve a just and lasting peace with all our neighbors and the Arab world in general, Netanyahu said in a speech to parliament, a day before his administration was to be sworn in.

Israelis, Netanyahu said during a session marking the 30th anniversary of Israel's peace treaty with Egypt, recognize genuine peace when they see it, and the Jewish state would answer the call of any peace-seeking Arab leader.

Netanyahu, leader of the right-wing Likud party, has said he would negotiate with the Palestinians but wanted to focus on shoring up their economy rather than on territorial issues that have blocked progress in negotiations that are currently frozen.

He has shied away from a direct commitment to the establishment of a Palestinian state alongside Israel, the main goal of U.S.-backed peace efforts.

Palestinian officials have said peacemaking stands no chance without an explicit Israeli commitment to statehood.

In parliament, Netanyahu listened without expression as outgoing Prime Minister Ehud Olmert urged him to endorse clearly the creation of a state in the West Bank and Gaza Strip.

Two states for two peoples. There is no alternative. There is no trying to be clever about it, Olmert said.

We are talking about a dramatic, painful and heart-wrenching compromise, but one that is necessary.

He called on Netanyahu to follow up on the previous government's indirect peace talks with Syria, Israel's neighbor to the north.


Netanyahu handed out cabinet posts in Jerusalem to Likud members, putting the finishing touches to a government dominated by right-wing and Orthodox Jewish factions, but including the center-left Labour Party.

It is due to be sworn in at a parliamentary session starting at 5 p.m. (10 a.m. EDT) on Tuesday.

The goal of Palestinian statehood was reaffirmed last week by U.S. President Barack Obama. Israeli political sources said Netanyahu was trying to arrange a meeting with Obama in early May in Washington.

International concern has been raised by Netanyahu's appointment of Avigdor Lieberman as foreign minister.

Lieberman, leader of the ultra-nationalist Yisrael Beitenu party, advocates trading parts of Israel where many of its 1.5 million Arab citizens live to a future Palestinian state in return for Jewish settlements in the occupied West Bank.

On paper, Netanyahu commands up to 69 seats -- 13 of them held by Labour -- in the 120-member parliament. The margin could be cut if Labour legislators opposed to its coalition deal with Likud vote with the opposition.

(Editing by Andrew Dobbie)