Media playback is unsupported on your device Media caption Benjamin Netanyahu "Israel will not return to the indefensible boundaries of 1967"

Israeli PM Benjamin Netanyahu has told the US Congress Israel would be generous with the size of a future Palestinian state but that the border could not rest at pre-1967 lines.

But he said he was "willing to make painful compromises" to achieve peace.

A Palestinian official said the Israeli PM had added more obstacles to a deal.

On Friday, Mr Netanyahu rejected US President Barack Obama's call for a peace deal with the Palestinians based on pre-1967 borders, plus land swaps.

"Israel will be generous on the size of the Palestinian state, but will be very firm on where we put the border with it. This is an important principle," Mr Netanyahu told Congress.

BBC Middle East editor Jeremy Bowen says that the speech shows that the gulf between Mr Netanyahu's view of an acceptable peace deal and that of the Palestinians is as wide as ever.

'Unstable Middle East'

Speaking to a supportive bipartisan audience at the US Capitol in Washington, Mr Netanyahu said Israel and the United States had no better friends than each other.

REACTION Initial Palestinian reaction to Benjamin Netanyahu's speech has been scathing. One senior Palestinian official told me it was a declaration of war not peace. A spokesman for the Palestinian President Mahmoud Abbas said the speech added nothing new other than obstacles to peace. Palestinian leaders already frustrated with America's role in a stagnant peace process will have been dismayed by the rapturous reception Mr Netanyahu received. Right now the two sides seem very far apart. Neither Israelis nor Palestinians are talking as if they anticipate being back at the negotiating table anytime soon. Some Palestinian leaders welcome President Obama's statement last week that a future Palestinian state should be based on the pre 1967 borders. In this latest speech, Mr Netanyahu again rejected that proposal. Palestinians are still threatening to go the United Nations to seek recognition of a Palestinian state in September a move strongly opposed by Israel and the United States.

"Israel has always been pro-American, Israel will always be pro-American," Mr Netanyahu said.

"In an unstable Middle East, Israel is the one anchor of stability. In a region of shifting alliances, Israel is America's unwavering ally," Mr Netanyahu said

And he thanked the US and President Barack Obama for killing al-Qaeda leader Osama Bin Laden, saying "good riddance".

He also urged Palestinian President Mahmoud Abbas to "tear up" a recent reconciliation agreement with Islamist party Hamas, which controls Gaza, saying that Israel could not make peace with a faction that does not recognise its right to exist.

'Startling fact'

Mr Netanyahu also gave a vigorous defence of Israel's place in the Middle East, describing it as an outpost of democracy and freedom in the region.

And he said that of 300 million Arabs in the Middle East and North Africa, only the one million living in Israel "are truly free".

"This startling fact reveals a basic truth," he said. "Israel is not what is wrong about the Middle East, Israel is what is right about the Middle East."

Mr Netanyahu was briefly interrupted by a heckler who denounced Israel's treatment of the Palestinians. He paused used the point to applaud American democracy, saying no one in the "farcical parliaments" of Tehran and Tripoli would be permitted such a protest.

"This is real democracy," he said.

Mr Netanyahu praised America's programme of sanctions against Iran, where President Mahmoud Ahmadinejad has called for Israel's destruction.

And Mr Netanyahu praised Mr Obama's declaration that the US was determined to prevent Iran from developing nuclear weapons, and urged the US to hold up the threat of military action deter that outcome.

"The more Iran believes that all options are on the table, the less the chance of confrontation," he said. "And this is why I ask you to continue to send an unequivocal message that the US will never permit Iran to develop nuclear weapons.

"If history has taught the Jewish people anything, it is that we must take calls for our destruction seriously. We are a nation that rose from the ashes of the Holocaust. When we say 'never again', we mean 'never again'".

'Painful compromises'

Mr Netanyahu said he remained committed to a two-state solution to the conflict in which an independent Palestinian state sits alongside a Jewish state.

"I'm willing to make painful compromises to achieve this historic peace," he said. "We seek a peace where [the Palestinians] will be neither Israel's subjects nor its citizens."

But he said the future border could not rest at Israel's "indefensible" 1967 lines, because many Israelis now live in suburbs of Tel Aviv and Jerusalem beyond Israel's pre-1967 territory.

He said the precise border must be drawn at the negotiating table, but said it would be different from the 1967 border.

Noting that Israel accepts Jewish immigrants from across the world, he said the Palestinian refugees who fled Israel in 1948 must be accepted into a future independent Palestinian state.

"The Palestinian refugee problem will be resolved outside the borders of Israel," he said.

About 500,000 Israelis live in the West Bank and in East Jerusalem, areas that lie behind Israel's pre-1967 borders.