Libyan leader Muammar Gaddafi grabbed the spotlight at the Arab summit in Algiers on Wednesday, calling Israelis and Palestinians idiots for seeking separate states and saying the U.N. Security Council was a terrorist organization.

The Algerian hosts of the two-day meeting gave the maverick leader a star role on the closing day, allowing him to vent at length on Arab grievances about international relations.

He said the world should thank Syria for maintaining peace in Lebanon and argued that what he called "Islamic terrorism" was mainly the result of the West's cultural arrogance.

The Arab leaders are expected to re-launch later in the day an Arab peace plan offering Israel normal relations in return for withdrawal to the 1967 borders and a Palestinian state.

But Gaddafi went against the grain, preaching the minority view that the solution to the Israeli-Palestinian conflict is for the two peoples to live together in a single state.

His targets, including Palestinian Authority leader Mahmoud Abbas, also known as Abu Mazen, and Iraqi Foreign Minister Hoshiyar Zebari, took it lightly, chuckling at his one-hour speech.

But he drew sustained applause for airing views which many Arabs express in private but which their leaders rarely utter in public. Among the dignitaries present was U.N. Secretary-General Kofi Annan, whose own speech was conventionally diplomatic.

Algerian President Abdelaziz Bouteflika, the host of the summit, hailed Gaddafi's frankness, if not his statesmanship.

"I believe most of his opinions and ideas are real and correct but the difference...is that I am responsible for the state and the people," he said.

"If an ordinary person (speaks like that) it doesn't matter, but I am responsible and I do not want to harm my people."

Gaddafi said Israel had no right to exist because the Palestinian inhabitants of the country never accepted it.

But he added: "I cannot recognize either the Palestinian state or the Israeli state. Don't be angry, Abu Mazen, but the Palestinians are idiots and the Israelis are idiots."

The Israelis were wrong to try to hold on to the West Bank in the face of Palestinian attacks and the Palestinians were wrong not to have set up their own state after 1948, he said.

"Oppression and injustice"

"The solution I think is to have a single state. We cannot have two states," added Gaddafi, who noted that he is now the longest serving Arab leader. He took power in 1969.

Gaddafi dismissed the argument that poverty is at the root of violence by militant Islamists and pinned the blame on "oppression, injustice, arrogance, insults, contempt and the humiliation of this (Arab) nation".

"How come we are considered to be children, with no law or social relations? ... This creates a million bin Ladens."

"Listen to us," he said, addressing Europe and the United States. "If you ignore us, you will lose in the end... If they want to combat terrorism, they should respect the Arab world."

The Arab summit agreed to back Egypt in a bid for a seat on the U.N. Security Council but Gaddafi said they should work instead to enhance the authority of the General Assembly.

"This is a terror council, not a security council. It is a terrorist organization. Why should we expand it?" he asked.

After a final closed session, the Arab monarchs and presidents will re-launch their Middle East peace initiative of 2002, to send the world a message of peaceful intentions.

Israel said on Monday that the plan was a "non-starter" and Arab states should start negotiations without conditions.

The Arab summit will send a small group of Arab leaders to present the plan to the Quartet of international mediators -- the United States, European Union, United Nations and Russia, Abbas told reporters.

Annan told the Arab leaders, including Syrian President Bashar al-Assad, that the killing of Lebanese former Prime Minister Rafik al-Hariri might need more investigation, beyond an initial U.N. inquiry, whose findings he will release soon.

He also said he expected Syria to withdraw all its troops from Lebanon in time for parliamentary elections in May.

But Gaddafi warned: "When Syria troops pull out, you'll see what will happen. It's better to have the guns of Syria than the guns of other regional countries."