Jerusalem - An Israeli minister has said US President Donald Trump's decision to recognise Jerusalem as Israel's capital does not signal the end of the two-state solution, with Israel willing to grant Palestinians their own independent state but with limited sovereignty.

Tzachi Hanegbi, minister of regional cooperation, said Trump's controversial decision on December 6 should not hinder Palestinian claims to have occupied East Jerusalem as their capital.

"We claim that Jerusalem is our capital and should not be divided, but that's only a claim, not a diktat," Hanegbi, a member of Prime Minister Benjamin Netanyahu's Likud party, told Al Jazeera at his office in the Israeli parliament, the Knesset.

Jerusalem remains at the core of the perennial Israel-Palestine conflict.

Israel occupied the city's eastern sector in 1967 and proceeded to annex it in breach of international law. Palestinian leaders want occupied East Jerusalem as the capital of their future state. Israel, meanwhile, insists that the city is its indivisible capital

"Palestinians can claim East Jerusalem as their capital and we can negotiate a settlement. Although we annexed East Jerusalem, it is still up for negotiations," said Hanegbi.

Palestinian reaction

But Nasser al-Kidwa, a senior Palestinian official, dismissed Hanegbi's remarks on Jerusalem as "nonsense", saying the minister's words could be true if they were matched by Israeli actions on the ground.

"While Israeli officials are talking about peace and negotiations, their government is creating facts on the ground that will undermine the two-state solution," al-Kidwa told Al Jazeera.

"Continued Israeli military occupation and building illegal Israeli settlements in the occupied East Jerusalem and the West Bank will not put an end to the conflict," he said by phone from Ramallah in the West Bank.

Breaking with years of US policy, Trump on December 6 formally recognised Jerusalem as Israel's capital, in a move that drew international condemnation and sparked a wave of heated rallies in support of the Palestinians around the Muslim world.

Leaders in the Middle East and elsewhere also warned Trump that his controversial decision, as well as his plan to move the US embassy from Tel Aviv to Jerusalem, would have grave implications for the so-called peace process and could lead to further unrest in the Middle East.

No country currently has its embassy in Jerusalem, which is home to holy religious sites and has particular significance for Muslims, Christians and Jews.

Palestinian officials also called Trump's move "a kiss of death to the two-state solution".

'Jerusalem cannot be monopolised'

Earlier this week, the Israeli Knesset passed a law making it harder to divide Jerusalem in any future deal with the Palestinians, a move described by some as dealing yet another fatal blow to a possible two-state solution.

But Hanegbi, a right-wing politician and close ally of Netanyahu, blamed the Palestinian leadership for failing to reach a final settlement to the long-running Israeli-Palestinian conflict.

"We don't reject the fact that Palestinians have legitimate aspirations to be independent," the minister of regional cooperation told Al Jazeera.

"From a moral point of view, there are conflicting moral values between Israelis and the Palestinians over which claim over the land is more legitimate than the other. Morally, we understand that millions of Palestinians want freedom."

Asked how he would feel if he was a Palestinian citizen living in the Palestinian cities of Jaffa, Haifa and Acre before 1948, which later became part of Israel, he replied: "I would be feel very bad. That's why there should be a compromise between both peoples."

Palestinians, however, rejected Hanegbi's allegations, saying it is the Israeli government that has so far not lived up to its signed agreements with the Palestinian Authority (PA).

Al-Kidwa, a member of the central committee of PA President Mahmoud Abbas' Fatah faction, said that given the vastly lopsided balance of power in favour of Israel against the Palestinians, a clear and firm negotiating framework must be established first.

"If the Israelis truly want to negotiate a peace agreement with the Palestinians, Israel must first recognise the Palestinian state with East Jerusalem as its capital, and only then both Palestinians and Israelis can negotiate over other issues," he said.

"Jerusalem cannot be monopolised by any party. Palestinians, who are native to the land, have compromised 78 percent of historic Palestine and are now only seeking to establish their state over the remaining 22 percent in the West Bank and Gaza."

Talking to Hamas

Speaking to Al Jazeera, Hanegbi also said that the Israelis had no objection to talk to Hamas and would be willing to negotiate if it accepts the principles set by the Quartet of international peace brokers: recognise Israel, abide by past Israeli-Palestinian agreements and renounce violence as a means to achieving its goals.

However, Osama Hamdan, Hamas' foreign policy chief, said such talks could not take place under the existing conditions.

"Negotiating with Israel is futile ... under the current Israeli policies in the occupied Palestinian territories," he told Al Jazeera.

"From experience, Israel is not seeking a resolution to the conflict, rather to control the Palestinian people. Israel's occupation must end first," added Hamdan.

Israeli cooperation with Gulf states

Commenting on regional matters, Hanegbi said that the Israeli government has back-channel ties with Saudi Arabia and the United Arab Emirates, but cannot risk acknowledging these without first reaching a peace agreement with the Palestinians.

"I cannot really envisage them willing to cooperate publicly with Israel until the Israeli-Palestinian conflict is moving forward," he said.

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"There is some kind of cooperation with Israel now, as Prime Minister Netanyahu has hinted at in the past. Moreover, we never heard a voice from the Gulf states denouncing these reports or saying it is not true," he said.

Hanegbi also said he has no knowledge of a secret deal between Israel and Saudi Arabia or other Arab states to create a Gaza-only Palestinian state, in what has been referred to in international press as the "ultimate deal".

Jordan ties

In his interview with Al Jazeera, Israel's minister of regional cooperation also highlighted the importance of Jordanian-Israeli relations, calling Amman "a strategic ally" of his country.

Israel-Jordan relations reached a crisis level when an Israeli embassy guard shot and killed two Jordanian citizens, including a 17-year-old, in July 2017.

Israel's government alleges the teenage boy had attacked the Israeli guard.

Israel's ambassador and other embassy staff returned to Israel amid public demands for the guard to stand trial in Jordan.

"The government of Israel should issue a formal apology to Jordan over the accidental killing of the Jordanian doctor," said Hanegbi.

Regarding the snag in the ties between the two countries, Hanegbi said that "Israel should give Jordan a ladder to climb down from the high tree it climbed up".

He said a joint Jordanian water canal project between the Red Sea and the Dead Sea is not moving forward because of disagreements over which country is responsible for its upkeep.

"The Jordanians would like to go ahead with the project but we have some reservations over who will pay for the hazard of the project because it is wholly on Jordanian soil."

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