The Israeli prime minister, Binyamin Netanyahu, has said there will never be peace with the Palestinians until they recognise Israel as a Jewish state, and has dismissed Israel's military occupation of Palestinian land and the growth of Israeli settlements as the root cause of the conflict.

In an uncompromising speech, Netanyahu insisted the Palestinians must abandon their core demand of the right of refugees to return to their places of origin. "Unless the Palestinians recognise the Jewish state and give up on the right of return there will not be peace," the prime minister said in an address at Bar-Ilan University on Sunday.

But, he added, even such recognition by the Palestinian leadership would be insufficient. "After generations of incitement we have no confidence that such recognition will percolate down to the Palestinian people. That is why we need extremely strong security arrangements and to go forward, but not blindly," he said.

The tone of Netanyahu's speech will dismay those on both sides and in the international community who believe that renewed peace talks, brokered by the US, represent possibly the last chance for a deal to create a Palestinian state and end the decades-old conflict.

It will fuel suspicion that, despite his professed readiness to engage in peace talks, Netanyahu is unwilling to make an historic agreement involving Israeli withdrawal from the West Bank, dismantling settlements and sharing Jerusalem as the capital of both states.

The prime minister's speech was delivered at the same venue where Netanyahu first acknowledged the need for a two-state solution to the conflict in 2009. That address was hailed by many commentators as a significant breakthrough by the Israeli leader, and was vehemently attacked by rightwingers as a dangerous concession.

In Sunday's speech, Netanyahu dismissed Israel's 46-year-long occupation of the West Bank, East Jerusalem and Gaza as the root cause of the conflict, saying it was based in Arab rejection of Jewish immigration to what was Palestine.

"When anyone is asked what is the source of the conflict, the standard answer is the occupation, the territories, the settlements. They say that the Israeli takeover of Judea and Samaria [the biblical term for the West Bank] following the [1967] Six-Day war to a large extent created the conflict, and I ask whether that is true," he said.

"The conflict, if I have to choose a date when it began in earnest, began in the year 1921, on the day Palestinian Arabs attacked the immigrants' house in Jaffa. This attack, of course, had nothing to do with the territories or settlements. It was against the immigration of Jews to the Land of Israel.

"Then came the partition plan in 1947, with the suggestion of an Arab state alongside a Jewish state. The Jews agreed, the Arabs refused. Because the issue was not then the question of a Palestinian state – the issue was and remains the Jewish state. Then 19 years later came the stranglehold around us aimed at uprooting us. And why? After all, then there was no occupation."

The Palestinians say that their goal in peace talks is an end to the Israeli military occupation and the establishment of an independent state with East Jerusalem as its capital. They say they have long recognised the state of Israel, but formal recognition of it as a Jewish state would be to deny the existence and rights of the 20% of Israel's population that is Palestinian and to effectively abandon the right of return.

Peace talks resumed in July and are scheduled to last until next spring but are said to be progressing slowly. The US secretary of state, John Kerry, said last month that talks would intensify and "American participation should be increased somewhat in order to try to help facilitate [progress]". His comments strongly suggested that the two sides were making little headway.