JERUSALEM – Israeli Prime Minister Benjamin Netanyahu said on Sunday he would strive for maximum understanding with Washington on peace issues but gave no sign he intends to bow to its demand to halt settlement expansion.

Under pressure from U.S. President Barack Obama over settlements in the occupied West Bank and Palestinian statehood, which Netanyahu has not endorsed, the Israeli leader said he would set out his policies in a major speech later this month.

I want to make clear, it is our intention to achieve peace with the Palestinians and with the countries of the Arab world while attempting to reach maximum understanding with the United States and our friends in the world, Netanyahu said.

I aspire to a stable peace based on the solid foundations of the security of the state of Israel and its citizens, he told his right-wing cabinet at its weekly meeting.

By mentioning security, Netanyahu again highlighted an issue he has called paramount to Israel's approach to peace with the Palestinians, whom he has said should have self-government but only limited powers of sovereignty.

In a speech on Thursday to Muslims in which he reaffirmed a U.S. commitment to the creation of a Palestinian state, Obama said Washington does not accept the legitimacy of continued Israeli settlements.

Despite the rare rift with the United States, Israel's main ally, Israeli officials said Netanyahu has no intention of risking the collapse of his coalition by ceasing all settlement activity in the West Bank.

Nabil Abu Rdainah, a spokesman for Palestinian President Mahmoud Abbas, urged Netanyahu to announce his acceptance of a two-state solution to the Israeli-Palestinian conflict, a settlement freeze and a return to serious negotiations.

Half a million Jews live in settlement blocks built in the West Bank and Arab East Jerusalem, areas where, with the Gaza Strip, Palestinians want to establish a state.

U.S. ENVOY

Obama's Middle East envoy, George Mitchell, is to begin a visit to Israel and the West Bank on Monday. Western and Israeli officials said the White House was formulating a blueprint for a renewed peace process that could be presented early next month.

Without giving a date, Netanyahu said Next week, I will make a major diplomatic speech in which I will present to the citizens of Israel our principles for achieving peace and security.

Israel Radio said he would deliver the address on June 14. A Netanyahu spokesman said he could not confirm the date.

Defense Minister Ehud Barak, head of the center-left Labour Party in Netanyahu's government, held out the possibility of a softening in Israel's position on Palestinian statehood in return for an easing of U.S. pressure over settlements.

Referring to a 2003, U.S.-endorsed peace plan, Barak told reporters the government should declare it is committed to all previous agreements signed by previous governments, including the 'road map', whose goal is two states for two peoples.

I believe such a position will bring the differences over settlements back to normal proportions, he said.

(Editing by Tim Pearce)

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