JERUSALEM (Reuters) - Benjamin Netanyahu was sworn in as Israeli prime minister on Tuesday after winning parliamentary approval for his right-leaning government.

In a speech introducing his cabinet, Netanyahu assured Palestinians that peace with Israel was possible.

Netanyahu, whose right-wing Likud party emerged on top in coalition bargaining after a February 10 election, also hit out at Iran and “extremist Islam” for threatening Israel’s existence.

“The greatest danger to humanity and our state of Israel stems from the possibility that a radical regime will arm itself with nuclear weapons,” he said, in indirect reference to Iran.

Returning to power 10 years after he was voted out as prime minister, Netanyahu read out a cabinet list that included ultranationalist Avigdor Lieberman as foreign minister. His policies toward Israeli Arabs have stoked international concern.

Parliament backed the appointments by a vote of 69 to 45 with five abstentions, after a six-hour debate, and Netanyahu and fellow cabinet ministers then took the oath of office.

“I say to the Palestinian leadership that if you really want peace we can achieve peace,” Netanyahu told a Knesset session interrupted by heckling from Arab and left-wing lawmakers.

He offered negotiations on “three parallel tracks, economic, security and diplomatic” with the Palestinian Authority.

While describing a final peace settlement under which Palestinians would run their own affairs, Netanyahu made no specific mention of establishing a Palestinian state -- a key demand of President Mahmoud Abbas and backed by Washington.

His coalition pact binding the various parties, however, contains a pledge to respect Israel’s international agreements, a formula that includes accords on a Palestinian state.

“Under a permanent settlement the Palestinians will have all the necessary authority to rule themselves, except for those that would threaten Israel’s existence and security,” he said.

COLLISION COURSE

Anything less than an explicit commitment to what is called the two-state solution to the Israeli-Palestinian conflict could put Netanyahu on a collision course with Washington and the European Union.

Incoming Israeli Prime Minister Benjamin Netanyahu (R) stands with outgoing Prime Minister Ehud Olmert at the start of the swearing-in ceremony for Netanyahu's new government at parliament in Jerusalem March 31, 2009. Netanyahu submitted his right-leaning government to parliamentary approval on Tuesday and assured Palestinian leaders that peace with Israel was possible.REUTERS/David Silverman/Pool

Abbas, responding to Netanyahu, said on Palestine Television: “This man doesn’t believe in peace so how can we deal with him? The world should tell Israel that it should accept a two-state solution.”

Nabil Abu Rdainah, an Abbas aide, said Netanyahu’s “obscure” statements were proof his government would focus on “destroying the peace process entirely.”

“We need an honest and clear commitment from the Israeli government to the two-state solution,” Rdainah told Reuters by phone from Doha.

Netanyahu has said he wants to focus negotiations on shoring up the Palestinian economy in the West Bank rather than on territorial issues that have blocked progress toward a settlement.

Netanyahu, like his predecessor Ehud Olmert, has said Israel, widely believed to be the Middle East’s only atomic power, will not tolerate Iran turning its nuclear program into weapons. Iran denies it is seeking such an arsenal.

Referring to Iran, and the Holocaust, he said: “The Jewish people has learned its lesson. It cannot afford to take lightly megalomaniac leaders who threaten to destroy it, and in contrast with the terrible trauma we experienced last century, when we were helpless and stateless, today we are not defenseless.

Netanyahu replaced Olmert, whose three-year tenure was marked by a reopening of land-for-peace talks with the Palestinians, wars against Islamist militants in Lebanon and the Gaza Strip -- and the corruption scandal that led to his resignation.

Israeli officials, diplomats and analysts have predicted Netanyahu will sidestep isolation by easing slowly into talks on Palestinian statehood and renewing peace overtures to Syria.

They said Netanyahu, who served as prime minister from 1996 to 1999, was likely to make clear to world powers that he, and not the outspoken Lieberman, makes the decisions on diplomacy.

On paper, Netanyahu commands up to 69 seats -- 13 of them held by Labour -- in the 120-member Knesset, although the margin could be cut by desertions by left-wing Labour lawmakers opposed to its coalition deal with Likud. Labour chief Ehud Barak stays on as defense minister but faces revolt in Labour’s ranks.