As Obama's vision was welcomed by the European Union, the United Nations, Russia, the Palestinians and parts of the Arab world, Israeli Prime Minister Benjamin Netanyahu bluntly rejected it as "unrealistic".

"While Israel is prepared to make generous compromises for peace it cannot go back to the 1967 lines because these lines are indefensible," Netanyahu said as the world called for an urgent resolution of the conflict.

"The only peace that will endure is one that is based on reality, on unshakeable facts. I think for there to be peace, the Palestinians will have to accept some basic realities," a grim-faced Netanyahu said in a dramatic Oval Office appearance after two hours of talks with Obama.

This prompted Palestinian leader Mahmud Abbas to urge Obama to press Netanyahu to accept a Palestinian state based on 1967 borders.

"We call on President Obama and the Mideast Quartet to pressure Netanyahu to accept the 1967 borders," Abbas' spokesman Nabil Abu Rudeina said in Ramallah.

"Netanyahu's position is an official rejection of Mr Obama's initiative, of international legitimacy and of international law."

The diplomatic Quartet on the Middle East, which includes the European Union, the United Nations, the United States and Russia, expressed "strong support" for Obama's statement that a Palestinian state should include land that Israel has occupied since the 1967 war.

"The Quartet agrees that moving forward on the basis of territory and security provides a foundation for Israelis and Palestinians to reach a final resolution of the conflict through serious and substantive negotiations and mutual agreement on all core issues," it said.

"The Quartet reiterates its strong appeal to the parties to overcome the current obstacles and resume direct bilateral negotiations without delay or preconditions."

European nations in particular have sought to relaunch the peace process using the Quartet, which set out a roadmap to peace under a land-for-security deal.

Israel would have to give up territory, while all Palestinian factions, notably the Hamas rulers in Gaza, would have to recognize Israel's right to exist and end violence.

EU foreign policy chief Catherine Ashton "warmly welcomes President Obama's confirmation that the borders of Israel and Palestine should be based on the 1967 lines," a spokeswoman said.

German Chancellor Angela Merkel said Obama's speech was "a very important message for the Middle East peace process" and the proposal "a good path that both sides should consider".

In London, British Foreign Secretary William Hague said he supported Obama's "clear message that the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps."

"The scale of the challenge is unprecedented and our response must match the aspirations of people across the region," he said as France, Sweden and Poland also backed Obama's statement.

In the Arab world, Jordan hailed the American president who it said "for the first time clearly spoke of his vision for the establishment of a Palestinian state based on 1967 borders and which must enjoy autonomy."

Lebanese prime minister-designate Najib Mikati said Obama's speech made no mention of Palestinian refugees' right to return -- a key concern for his country which is estimated to host up to 400,000 Palestinian refugees.

Syria's official SANA news agency said Obama's speech offered nothing new but "reaffirmed the deep-rooted and unwavering support for Israel's security."

Alone in outright condemnation, Iran slammed Obama's statement as a sign of "despair".

"The despair, contradictions and lies are visible in the speech by Mr Obama and his support for the Jewish state clearly shows the racist nature of US policy," said Saeed Jalili from the Supreme National Security Council, the body which sets Iran's national security policy.

Jalili insisted that "all the land belongs to the Palestinians ... this is what the region demands and we will accept nothing less."

Iran does not recognise Israel's right to exist.

burs-mlr/boc

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