Israel praises Obama, says its security paramount

JERUSALEM (Reuters) - The Israeli government responded to U.S. President Barack Obama's speech to Muslims on Thursday by saying it shared his hopes for Middle East peace but Israel's security interests remained paramount.

"We share President Obama's hope that the American effort heralds the opening of a new era that will bring an end to the conflict and to general Arab recognition of Israel as the nation of the Jewish people that lives in security and peace in the Middle East," an official statement said.

"Israel is committed to peace and will do all it can to expand the circle of peace while considering its national interests, first and foremost being security," it said after Obama's address in Cairo.

The statement made no mention of Jewish settlements in the West Bank, which Obama said should not be expanded, nor Palestinian statehood.

At odds with Obama, Israeli Prime Minister Benjamin Netanyahu has said that construction would continue in existing settlements and he has not publicly endorsed a two-state solution to the Israeli-Palestinian conflict.

Netanyahu, who heads a right-leaning government, has said Israel's security considerations are crucial in the pursuit of peace with the Palestinians and that any entity they establish must be demilitarized and have limited powers of sovereignty.

Defense Minister Ehud Barak said in a television interview Israel had no intention of building new settlements and that he was certain an understanding could be reached with the U.S. over what Israel calls "natural growth" in existing settlements.

Barak heads the center-left Labour party, considered the most moderate of the coalition partners in Netanyahu's government.

"I am sure that if we bravely and directly adopt the vision of a regional, comprehensive settlement, the 'road map' and the two-state solution, we will find a way to an understanding (with the U.S.) about the concept of natural growth," Barak told Channel 2 from Washington.