Israel must come up with a new diplomatic initiative and continue negotiating with the Palestinians, despite the establishment of the Fatah-Hamas unity government, Justice Minister Tzipi Livni said Sunday.

“We must distinguish between the new government and Hamas,” Livni told the Herzliya Conference, Israel’s leading annual global policy gathering. “We must battle Hamas, but not the Palestinian government. We must work with the Palestinian government, taking into account Israeli needs and our interests, and demand they show responsibility,” she said.

Moreover, she said, construction in the settlements must be frozen. “I’m sick of being politically correct,” she declared. “It’s time to say things exactly as they are: The settlement enterprise is a security, economic and moral burden that is aimed at preventing us from ever coming to an arrangement.”

Livni noted that Palestinian Authority President Mahmoud Abbas established the Palestinian government under the terms of the Quartet – recognition of Israel, honoring previous agreements and rejecting terrorism. “There’s no point in crying foul over the Palestinian government simply because it’s been formed,” she said. “It must be judged by its actions and policies. That’s how the world will also judge us – not by party platforms, some of which refuse to even say ‘two states for two peoples.’”

The justice minister called for continuing talks with the PLO, “the official body of the Palestinians, in which Hamas has no part.” She said she planned to continue talking to Abbas about advancing an agreement.

Livni, whose address followed that of Finance Minister Yair Lapid, echoed many of his messages, saying that Israel has to make an “urgent and critical” decision: “What do we want for ourselves?” she asked. “A Jewish and democratic state with recognized borders in the area of the Jewish people’s historic homeland but not on all of it? Or the entire Land of Israel, a state that is neither Jewish or democratic, coping with a bloody struggle that will just go on and on?”

When referring to the settlements, Livni said that its leaders market the settlements to the public as a security need, when they are in fact a security burden.

“The answer to our security is the Israel Defense Forces,” she said. “Security is provided by soldiers, not civilians. Families with children in the settlements don’t have to be the human shields of the State of Israel. The settlement enterprise critically undermines the IDF’s legitimacy in the world … which is not able to accept what it sees as colonialist behavior on our part.”

The justice minister stressed that she would oppose any attempt to unilaterally annex settlements, and would also oppose the “Jewish-state nationality bill” if its wording undermines democracy and equality. “These things won’t be approved by any government that I’m partner to. And if they are approved, I won’t be in the government,” she stressed.