Israel's Benjamin Netanyahu on Tuesday directly urged Palestinian president Mahmud Abbas to recognize Israel as a Jewish state and to "abandon the fantasy" of flooding Israel with refugees.
But his remarks sparked a furious reaction from the Palestinians who denounced his demand and said it had effectively put the final nail in the coffin of the US-led peace talks.
The latest spat threw a harsh spotlight on the yawning divide between the two sides, and the Herculean task faced by US Secretary of State John Kerry who is trying to get them to agree a framework for extending direct peace talks beyond an April 29 deadline.
Addressing delegates at the annual policy conference of AIPAC, Netanyahu said he was prepared to make an "historic peace," but not without a Palestinian acceptance of the Jewish state.
"It's time the Palestinians stopped denying history," he said, returning to a major point of disagreement in peace talks, which have struggled to make headway in the last seven months.
"President Abbas: recognize the Jewish state and in doing so, you would be telling your people.. to abandon the fantasy of flooding Israel with refugees," he said.
Netanyahu insists that only when the Palestinians acknowledge Israel as the Jewish state will the conflict be finally over.
For the Palestinians, the issue is intimately entwined with the fate of their refugees who were forced out of their homes or fled in 1948 when Israel became a state. They see Netanyahu's demand as a way to sidestep a negotiated solution to the refugee question.
Netanyahu also alluded to Israel's demand to retain a military presence along the Jordan Valley, which runs down the eastern flank of the West Bank, in any future deal saying he would not cede security to foreign peacekeepers.
His words sparked an immediate backlash from Ramallah.
Top Palestinian official Nabil Shaath told AFP that Netanyahu's demand for such recognition, and his insistence on keeping Israeli troops deployed in a future Palestinian state were "totally rejected."
Netanyahu's speech was tantamount to "an official announcement of a unilateral end to negotiations," he said.