1967 lines with mutually agreed swaps

Obama described the pursuit of peace between Israel and the Palestinians as another "cornerstone" of U.S. approach to the region.

He called on Israel and the Palestinians to negotiate a two-state solution based on the 1967 borders with mutually agreed swaps, so that "secure and recognized borders are established for both states."

He said he disagreed with those who argue that with all the change and uncertainty in the region, it is simply not possible to move forward the Israeli-Palestinian peace process.

"At a time when the people of the Middle East and North Africa are casting off the burdens of the past, the drive for a lasting peace that ends the conflict and resolves all claims is more urgent than ever," Obama said.

He said while the core issues of the conflict must be negotiated, the basis of the negotiations is clear -- a viable Palestine and a secure Israel.

"The United States believes that negotiations should result in two states, with permanent Palestinian borders with Israel, Jordan and Egypt, and permanent Israeli borders with Palestine," he added.

"The borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognized borders are established for both states."

The statement made Obama the first sitting president to say that the final borders should be "based on the 1967 lines with mutually agreed swaps."

"The Obama formulation concretizes a move away from four decades of U.S. policy based on UN Security Council Resolution 242 of November 1967, which has always interpreted calls for an Israeli withdrawal to a 'secure and recognized' border as not synonymous with the pre-1967 boundaries," said Robert Satloff, executive director of the Washington Institute for Near East Policy.

Upon taking office in January 2009, Obama put the Israeli-Palestinian peace process on his top agenda. He managed to have the two sides sit down for direct talks in early September last year, but saw the talks collapse only weeks later.

"My administration has worked with the parties and the international community for over two years to end this conflict, yet expectations have gone unmet," Obama said. "Israeli settlement activity continues. Palestinians have walked away from talks. The world looks at a conflict that has grinded on for decades, and sees a stalemate."

Frustrated, the Palestinians have made it known that they would be seeking recognition of their statehood at the United Nations when the General Assembly meets in September, while Israeli Prime Minister Benjamin Netanyahu has argued that violence in Syria, new reconciliation agreement between Palestinian factions and changes in Egypt have created too much uncertainty for peace talks to restart soon.

On Sunday, a dozen Palestinians were killed by Israeli troops as thousands of Palestinians marched from Syria, Lebanon, the Gaza Strip and the West Bank toward Israeli border positions to mark the day of catastrophe, which the Palestinians have observed annually to commemorate their massive displacement following the 1948 creation of Israel.

In his meeting with Obama at the White House on Tuesday, Jordanian King Abdullah II urged the president to use his speech to outline a specific blueprint for peace between the Israelis and Palestinians, which he described as "the core issue" of the Middle East.

Obama warned that "For the Palestinians, efforts to delegitimize Israel will end in failure. Symbolic actions to isolate Israel at the United Nations in September won't create an independent state."

On security arrangements, Obama said a future Palestinian state must be non-militarized, and the "full and phased withdrawal" of Israeli forces should be geared to the ability of Palestinian security forces and other arrangements as agreed to prevent a "resurgence of terrorism," stop the infiltration of weapons and provide effective border security.

"As for Israel, our friendship is rooted deeply in a shared history and shared values. Our commitment to Israel's security is unshakeable," Obama said.

"But precisely because of our friendship, it is important that we tell the truth: the status quo is unsustainable, and Israel too must act boldly to advance a lasting peace."

Obama is scheduled to meet Netanyahu at the White House on Friday and is set on a collision course with his guest as the hardline prime minister rejected a full withdrawal from the West Bank on the grounds that the 1967 lines are "indefensible" and would leave major Jewish settlements outside Israel.

In his speech, Obama acknowledged that his borders-and-security-first approach alone will not resolve the conflict as two "wrenching and emotional issues" will remain -- the future of Jerusalem and the fate of Palestinian refugees.

"But moving forward now on the basis of territory and security provides a foundation to resolve those two issues in a way that is just and fair, and that respects the rights and aspirations of both Israelis and Palestinians," he argued.