JERUSALEM - Israeli Prime Minister Benjamin Netanyahu endorsed a Palestinian state beside Israel for the first time yesterday, reversing himself in the face of U.S. pressure but attaching conditions like demilitarization that the Palestinians swiftly rejected.

A week after President Barack Obama's address to the Muslim world, Netanyahu said the Palestinian state would have to be unarmed and recognize Israel as the Jewish state - a condition amounting to Palestinian refugees giving up the goal of returning to Israel.

With those conditions, he said, he could accept "a demilitarized Palestinian state alongside the Jewish state."

The West Bank-based Palestinian government dismissed the proposal as an attempt to determine the outcome of negotiations while maintaining Israeli settlements, keeping Jerusalem and ignoring the issue of borders.

Netanyahu, in an address seen as his response to Obama, refused to heed the U.S. call for a freeze of construction on lands Palestinians claim for their future state. He also said the holy city of Jerusalem must remain under Israeli sovereignty. *