The failure to agree a two-state solution with the Palestinians is the only existential threat facing Israel, according to the former Mossad director, Tamir Pardo.

Speaking at a conference in Netanya, Mr Pardo declared Israel had “buried its head in the sand” over its conflict with the Palestinians.

“Israel has chosen not to choose, hoping the conflict will resolve itself, or that the Arabs will disappear in some kind of cosmic miracle,” Mr Pardo told his audience at the conference in memory of his predecessor at Mossad, Meir Dagan.

The Israeli prime minister Benjamin Netanyahu has often warned that Iran represents the greatest existential threat to Israel, but Mr Pardo said that in fact it was the internal situation which was a “ticking time bomb”.

Israel had to separate itself from the Palestinians, he said, pointing out that in terms of numbers the populations of Jews and Palestinians were nearly equal.

“Eventually we will become a bi-national state because it will be impossible to untie the knot between the two peoples,” he said. “Is this our desire and is this the Zionist vision? This is what we will want to leave our children?”

Mr Pardo was director of Mossad from 2011-2016.

Mr Netanyahu distanced himself from the prospect of a two-state solution when he visited the US last month. The US president, Donald Trump, has said he believes a peace deal between the Israelis and Palestinians is possible but he emphasised that he was not going to tell them how to reach it.

“I’m looking at two states and one state, and I like the one that both parties like,” he said.

Since Mr Trump’s inauguration Israel has approved the construction of around 6,000 new homes in the West Bank and East Jerusalem.

However, during a press conference at the White House Mr Trump told Mr Netanyahu “I’d like to see you hold back on settlements for a little bit.”