Palestinian dismay, U.S. and EU caution on Netanyahu

By Mohammed Assadi

RAMALLAH, West Bank (Reuters) - Palestinians voiced dismay on Monday over terms Benjamin Netanyahu set for a peace deal but the Israeli leader won guarded approval in Washington and Brussels for at least accepting Palestinian statehood.

In a speech on Sunday, Netanyahu responded to weeks of U.S. pressure by endorsing for the first time establishment of a Palestinian state, on condition Israel received international guarantees in advance the new nation would be demilitarised.

But Palestinians were disappointed by the prime minister's demand they recognise Israel as a Jewish state and his failure to halt Jewish settlement expansion in the occupied West Bank.

Salam Fayyad, prime minister in the Western-backed goverment of Palestinian President Mahmoud Abbas, said Netanyahu's speech "dealt a new blow to efforts to salvage the peace process, and has undermined the possibility of resuming negotiations based on its terms of reference".

Netanyahu "failed to meet the expectations of the international community" and did not commit to obligations outlined in a 2003 U.S.-sponsored "road map" for peace, he said.

White House spokesman Robert Gibbs termed Sunday's address "a big step forward" for implementing President Barack Obama's peace vision.

"The president believes that there's a long way to go and many twists and turns in the road to get there, but is pleased thus far with the progress that's being made, and I think yesterday's speech certainly is a big part of that."

The European Union described the speech as "a step in the right direction" but said it was not enough to raise EU-Israel ties to a higher level.