In Jerusalem Day ceremony PM vows 'never to return to reality of a torn city' and urges peace talks - even as Abbas demands division.

Prime Minister Binyamin Netanyahu reiterated his call for a peace deal on Sunday during a Jerusalem Day ceremony at Ammunition Hill in the capital city, even as he said he would not agree to redivide Jerusalem as it was until the 1967 Six Day War.

"For 49 years Jerusalem has been liberated from its handcuffs and we will not return to that reality, never again," he promised, in an event attended by President Reuven Rivlin, Jerusalem Mayor Nir Barkat and numerous other diplomats.

"Jerusalem is not free of problems, we are dealing with them, but that reality of a divided city, a wounded city, a torn city - to that reality we will not return."

Netanyahu's declaration, which was accompanied by a call for peace talks, comes the same day Palestinian Authority (PA) Chairman Mahmoud Abbas said he would not agree to any peace deal that did not include a Palestinian capital in Jerusalem.

Ironically, Netanyahu has been accused of implementing a de facto division of the capital by allowing rampant illegal Arab construction and freezing Jewish construction - the city's mayor Barkat just last Friday criticized the government for implementing a building freeze.

In his speech Netanyahu continued by saying he wants to enter peace negotiations with Abbas.

"Jerusalem has 70 names. One of them is the City of Peace. The state of Israel wants peace, I want peace," he said.

"I am interested in renewing the diplomatic process whose goal is achieving peace, but in a direct negotiation between us and our neighbors, in which they eventually will recognize Israel as the nation state of the Jewish people. Peace is not achieved by international edicts," he said, in criticism of the French initiative to renew talks.

Netanyahu added that "every international edict only distances peace and only radicalizes the positions of the Palestinians. One who refuses to recognize Israel as the nation state of the Jewish people, one who turns the Temple Mount into a center of religious incitement, one who does not shirk themselves of the terror still has a long way to go in order to reach peace."

Rivlin also spoke at the event, in which he called for the 3,000-year-old Jewish capital of Jerusalem to be recognized as a Jewish and Arab city.

"Yesterday I watched a report on the education system in Jerusalem in which Jewish students view Jerusalem as only Jewish, and Arab students who view Jerusalem as only Arab. This is what education looks like when there is no meeting, when there is no familiarity, a system in which the other is the stranger and the enemy," he said.

"We must remember that Jerusalem is a microcosm of the entire Israeli society, and the mission of familiarity between sectors and tribes is a national mission," claimed Rivlin.

"If we remember that we are not sentenced to live together, but rather we are meant to live together, Jerusalem will not only be a city of the past, but also the city of hope, the city of the future."