Updated at 3:28 p.m. ET

Israeli Prime Minister Benjamin Netanyahu rebuffed President Obama today over using the 1967 Israeli-Palestinian borders as a basis for a peace agreement.

Speaking after an Oval Office meeting that went nearly two hours longer than scheduled, Netanyahu said any deal "cannot go back to the 1967 lines, because these lines are indefensible, because they don't take into account certain changes that have taken place on the ground."

Between 1948 and 1967, Netanyahu said, "These were not the boundaries of peace. They were the boundaries of repeated wars."

His comments represented a setback for Obama, who proposed in a speech Thursday that Israeli-Palestinian peace talks resume with the 1967 lines -- plus agreed-upon "swaps" -- forming the basis for a deal. Less than 24 hours later, the leader of Israel had rejected the U.S. president's proposal.

"Obviously, there are some differences between us in the precise formulations and language," Obama said. "That's going to happen between friends."

Netanyahu told reporters after nearly 2 1/2 hours of private talks that Obama's vision wouldn't create a lasting peace.

"Peace based on illusions will crash eventually on the rocks of Middle Eastern reality," he said.

While Obama's proposal left out two key issues -- the status of Jerusalem and what to do about Palestinian refugees who want to settle in Israel -- Netanyahu made clear the latter is a non-starter.

"It's not going to happen. Everybody knows it's not going to happen," he said. While the refugees need a place to live, he said, "It's not going to be resolved within the Jewish state."

Both men agreed that another pre-requisite for peace talks must be the Palestinian Authority's rejection of Hamas, which Netanyahu called "the Palestinian version of al-Qaeda." He said his counterpart in peace talks, Mahmoud Abbas, must choose between Hamas and Israel.

Obama agreed. He called it "very difficult for Israel to be expected to negotiate in a serious way with a party that refuses to acknowledge its right to exist.

Netanyahu said those three conditions -- no 1967 lines, no acceptance of Palestinian refugees and no alignment between Abbas' Fatah party and Hamas -- must be met for Israel to move forward with peace talks.

"We don't have a lot of margin for error," the prime minister said. "History will not give the Jewish people another chance."

Obama did get one endorsement for his policy prescription today. The Middle East Quartet -- representing the United Nations, European Union and Russia, in addition to the United States -- applauded his initiative: