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AUDIE CORNISH, HOST:

Israel's Prime Minister, Benjamin Netanyahu, is visiting the U.S. His trip coincides with news out of Jerusalem. City officials approved new Jewish housing in East Jerusalem - that's the area captured by Israel in the 1967 war - that the Palestinians seek to use as the capital of their state.

STEVE INSKEEP, HOST:

The 2,500 new homes won approval, despite a sharp warning. The United States says Israeli construction in West Bank areas dims hopes for an eventual Palestinian state. Prime Minister Netanyahu has said he favors a Palestinian state so that raised some questions when we sat down here in Manhattan.

State Department spokeswoman describes that final approval for the settlements as a troubling message, sending a troubling message, that will distance Israel from even its closest allies. What makes that particular settlement worth the trouble?

PRIME MINISTER BENJAMIN NETANYAHU: These are not settlements. These are neighborhoods in Jerusalem. Jerusalem has been the capital of the Jewish people for thousands of years and I think in any conceivable peace plan, including those that were discussed with the Palestinians, even the Palestinians understood that Jewish neighborhoods would remain in Jerusalem.

INSKEEP: But we're talking here about 2,500 homes in East Jerusalem.

NETANYAHU: They're not in East Jerusalem, they're in South Jerusalem, actually and they include 700 units for the Arab residents of Jerusalem. That's a little fact that hasn't gotten any press.

INSKEEP: We are talking about east of the 1967 line, though, are we not?

NETANYAHU: Sure.

INSKEEP: So when you say South Jerusalem, it's former East Jerusalem.

NETANYAHU: Nearly half of Jerusalem's population live in neighborhoods that bought the former 1967 borders and nobody in his right mind thinks that they're going to be uprooted. In fact, the whole presentation of the idea of swaps that the Palestinians have made is based on their understanding that these neighborhoods are going to stay.

INSKEEP: A couple of other statements - as you know, a number of weeks ago, 43 reservists in the Israeli Defense Forces put their names on a letter stating that they objected to serving in the West Bank because - according to this letter, anyway - they felt that they were being made to control another nation.

What, if anything, is wrong with what they said?

NETANYAHU: Well, first of all, look at what's right about Israel - you can publish anything. You don't get beheaded, you don't get - as in Gaza -a bullet in the back of your head, say what you want. They can do that. We actually don't do what they claim we do. We're very careful and the practices that they're talking about...

INSKEEP: Well, they said that you were spying on people. You say that's not what was happening?

NETANYAHU: Well, I didn't say we're not spying on people, but they implied that we were exploiting sexual peccadilloes and we don't, that's not true.

INSKEEP: What about that basic statement though, that they were being made to control another nation?

NETANYAHU: There's a difference. There's no question about the fact that there are differences in point of view, but I think the real question is, how do we get peace?

INSKEEP: That brings us to another statement, one of yours.

Over the summer during the war against Hamas, you made a statement about the West Bank and you said, that there cannot be any agreement - a peace agreement - in which we, Israel, would relinquish security- control west of the River Jordan, saying that Israel must remain in charge of security in the West Bank.

How can there be a fully sovereign Palestinian entity if you maintain security-control over the West Bank in the long-term?

NETANYAHU: Well, I think you're going to have a long-term Israeli security presence there and that's what I was referring to and how can that be? How can you possibly reconcile a long-term security presence of a former enemy on your own territory? Well, let's see, how about Germany and American bases there? How about South Korea and American bases there? How about Japan?

INSKEEP: But you said security-controlled. Do not mean control, do you just mean an Israeli base?

NETANYAHU: Well, it's not really a base in our case - we have a problem. I'll tell you what it is. We relinquished all security-control in Gaza. You know, we went by the international book, so to speak. They said, go back to the '67 lines, uproot all the settlements, hand the keys over to President Abbas of the Palestinian Authority, hope for the best. And what we got was not peace; what we got was an Islamist enclave from which 15,000 rockets have been fired in Gaza.

INSKEEP: In Gaza?

NETANYAHU: From Gaza, yeah - from Gaza. In Gaza and from Gaza. And we've had to go to three military operations in these ensuing seven years. We can't just replicate that in the West Bank.

INSKEEP: So the Palestinians have to except they just cannot have a fully-sovereign entity? They have to live with Israeli troops?

NETANYAHU: I think we have to differentiate between political sovereignty and security arrangements, just as you do that in other countries that I mentioned.

INSKEEP: That's part of our conversation with Israeli Prime Minister Benjamin Netanyahu, here in New York. Elsewhere this morning, we will ask if Netanyahu now sees eye to eye with President Obama in talking with Iran.

INSKEEP: It's MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.

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