Israeli prime minister Benjamin Netanyahu has told US president Barack Obama his vision of how to achieve Middle East peace is unrealistic.

In an unusually sharp rebuke to Israel's closest ally, Mr Netanyahu insisted Israel would never pull back to its 1967 borders - which would mean big concessions of occupied land - that Mr Obama had said should be the basis for negotiations on creating a Palestinian state.

"Peace based on illusions will crash eventually on the rocks of Middle East reality," an unsmiling Mr Netanyahu said as Mr Obama listened intently beside him in the Oval Office last night after they met for talks.

Mr Netanyahu insisted that Israel was willing to make compromises for peace, but made clear he had major differences with Washington over how to advance the long-stalled peace process.

Mr Netanyahu's resistance raises the question of how hard Mr Obama will push for concessions he is unlikely to get, and whether the vision the US leader laid out on Thursday to resolve the decades-old conflict will ever get off the ground.

Despite assurances of friendship by both leaders, this week's events also appeared to herald tense months ahead for US-Israeli relations, even as the Arab world goes through political tumult and Palestinians prepare a unilateral bid this fall to seek UN General Assembly recognition for statehood.

Speaking to reporters after the meeting, Mr Obama said he reiterated to Mr Netanyahu the peace "principles" he offered on Thursday in a policy speech on the Middle East upheaval.

The goal, he said, "has to be a secure Israeli state, a Jewish state, living side by side in peace and security with a contiguous, functioning and effective Palestinian state.

Mr Obama on Thursday embraced a long-sought goal by the Palestinians: that the state they seek in the occupied West Bank and Gaza Strip should largely be drawn along lines that existed before the 1967 war in which Israel captured those territories and east Jerusalem.

Mr Netanyahu, who heads a right-leaning coalition, responded with what amounted to a history lecture about the vulnerability to attack that Israel faced with the old borders. "We can't go back to those indefensible lines," he said.

Picking a fight with Israel could be politically risky for Mr Obama at home as he seeks re-election in 2012.

The brewing crisis in US-Israeli relations dimmed even further the prospect for resuming peace talks that collapsed late last year when Palestinians walked away in a dispute over Israeli settlement building in the West Bank.

Mr Obama and Mr Netanyahu, meanwhile, appear to have reached an impasse after two and a half years of rocky relations.

The Obama White House was angered when Mr Netanyahu refused a US demand to halt building Jewish settlements in the West Bank.

Reuters