Israeli Foreign Minister Tzipi Livni told a Berlin conference this week that Israel was willing to accept territorial compromise in return for peace.

But Israel would not accept another “extremist Islamic state which is unable to fulfil its commitments and control its own territory”, said Ms Livni. She was one of 20 foreign ministers — including US Secretary of State Condoleezza Rice — at the Conference in Support of Palestinian Civil Security and the Rule of Law hosted by German Chancellor Angela Merkel and Foreign Minister Frank-Walter Steinmeier.

Ms Livni said that she believed that the majority of the Israeli public was willing to accept this type of agreement, but that “actual territorial concessions” would occur only when the Israeli government is “certain of what will happen on the other side of the border. We cannot simply determine the border of the Palestinian state without being able to hand over the keys to an effective and responsible government able to restore law and order on the other side,” she declared.

EU MidEast envoy Tony Blair said the issue of Israeli settlements could be tackled “after basic questions related to the division of lands” were resolved.

Ms Merkel said a future two-state solution depended on a stable Palestinian state governed by the rule of law. “Police and the justice system really must work hand in hand,” she said, adding that Hamas would remain isolated until it recognises Israel’s right to exist and ceases attacks on the country.

Palestinian Prime Minister Salam Fayyad demanded that Israel stop building settlements in contested areas. “Palestinians must be able to see a future and sense freedom,” he said.