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Member states, who wrangled for months over the draft document for the Geneva conference, had ultimately removed controversial statements about Israel; about what constitutes defamation of religion, a position pushed by Muslim states; and about compensation for slavery.

Besides the United States, the countries staying away included Germany, Italy, Poland, the Netherlands, New Zealand and Australia. Canada and Israel announced months ago that they would not attend.

“Following World War II they resorted to military aggressions to make an entire nation homeless under the pretext of Jewish suffering,” Mr. Ahmadinejad said, grinning as he spoke, his remarks coincidentally falling on the day that Jewish communities mark the Holocaust. “And they sent migrants from Europe, the United States and other parts of the world in order to establish a totally racist government in occupied Palestine.”

The speech prompted the normally mild-mannered Mr. Ban and other top United Nations officials to voice uncommon criticism of the leader of a member state. “I have not experienced this kind of destructive proceedings in an assembly, in a conference, by any one member state,” Mr. Ban said.“I deplore the use of this platform by the Iranian president to accuse, divide and even incite,” he said, urging members to “turn away from such a message in both form and substance.”

Navi Pillay, the United Nations high commissioner for human rights, criticized Mr. Ahmadinejad for “grandstanding” from a United Nations dais and said his performance should not be an excuse to derail the important topic of the conference. She also made a not-so-subtle dig at Iran’s treatment of its own minorities, after noting that the president’s remarks were outside the scope of the conference. “This is what I would have expected the president of Iran to come and tell us: how he is addressing racial discrimination and intolerance in his country,” Ms. Pillay said.

Israel recalled its ambassador to Switzerland to protest both the conference and meeting Sunday between the Swiss president, Hans-Rudolf Merz, and Mr. Ahmadinejad.

Not everyone at the conference was critical of the speech, which also wandered through topics like the economic collapse and Iraq and Afghanistan. “If we actually believe in freedom of expression, then he has the right to say what he wants to say,” the Pakistani ambassador to the United Nations in Geneva, Zamir Akram, told The Associated Press. “There were things in there that a lot of people in the Muslim world would be in agreement with, for example the situation in Palestine, in Iraq and in Afghanistan, even if they don’t agree with the way he said it.”

As the new prime minister, Mr. Netanyahu has tried to strike a more conciliatory tone, promising to hold negotiations with the Palestinian Authority toward a permanent accord. But he has also stopped short of endorsing the two-state solution, putting the new government at odds with the United States and the European Union.

Tony Blair, the special envoy of the so-called quartet of Middle East peacemakers, which consists of the United States, the European Union, the United Nations and Russia, said Wednesday that the peace process was in “very great jeopardy.”

He once advocated bombing the Aswan dam in the event of a war with Egypt, and last year he suggested that Egypt’s president should “go to hell” if he did not want to visit Israel.

Often contradictory and contrary in his positions, Mr. Lieberman, a resident of a Jewish settlement in the West Bank, has said that he advocates the creation of a viable Palestinian state. Yet in January 2008 he pulled his party out of the last governing coalition, led by Ehud Olmert and the centrist Kadima Party, in protest against the Annapolis-inspired talks.

Mr. Lieberman said on Wednesday that instead of Annapolis, Israel was committed to the “road map,” a 2003 American-backed performance-based peace plan that made the creation of a Palestinian state contingent on the Palestinians ending all violence and dismantling terrorist networks.Mr. Erekat, the Palestinian negotiator, noted that the plan also called for Israel to freeze all settlement construction. “I’d really like to know, are we going to see a settlement freeze?” Mr. Erekat said.

Briefing foreign reporters last week, Deputy Prime Minister Dan Meridor, a stalwart of Netanyahu's Likud party, urged them to ask whether "Palestinians would accept that Jews will live among them, or whether it is going to be totally not allowed." "'Judenrein' is the term that was once used in other countries," Meridor said darkly, in remarks echoed the next day by another Likud minister who briefed journalists and diplomats.

"We believe that this is simply a new strategy by Israel to delay any real outcome," said Xavier Abu Eid, a Palestinian diplomat. "In past negotiations, I can assure you, Israel never tried to have Jews remain in the state of Palestine."

Challenged over the West Bank settlers' prospective status, Palestinian Prime Minister Salam Fayyad was quoted this week telling the Ideas Festival in Aspen that "Jews, to the extent they choose to stay and live in the state of Palestine, will enjoy those rights and certainly will not enjoy any less rights than Israeli Arabs enjoy now in the state of Israel."

Zalman Shoval, a former Israeli ambassador to Washington and veteran Likud member, voiced misgivings about the use of "Judenrein" in the Palestine context: "I don't like to transfer the trappings of Nazis to others, even if they are our enemies." What was being branded as the Palestinians' bigotry, he said, could also be prudence about steps that might pre-judge disputes such as those over Palestinian refugees from Israel.

"Israel's relentless settlement expansion, which has seriously eroded the prospects for a two-state solution, must cease, together with its closure of Gaza," said Mubarak, referring to a blockade by Israel of Gaza which is controlled by the militant group Hamas.

He said if Israel took "serious steps" toward peace with the Palestinians, the Arab world would do the same. "The priority should be to resolve the permanent borders of a sovereign and territorially contiguous Palestinian state, based on the 1967 lines, as this would unlock most of the other permanent status issues, including settlements, security, water and Jerusalem," said Mubarak.

Israel has sent messages to several Arab states recently, seeking to counter negative reactions to Prime Minister Benjamin Netanyahu's speech on Sunday and asking them to pressure Palestinian President Mahmoud Abbas to resume negotiations with Israel. As part of this effort, National Security Council chairman Uzi Arad met with Egyptian officials in Cairo this week, including intelligence chief Omar Suleiman.

Mr. Obama seemed to connect with his audience in his 55-minute speech from Cairo University as he quoted repeatedly from the Koran and occasionally sprinkled his remarks with Arabic, even beginning his address with the traditional Arabic greeting “salaam aleikum,” or “peace be upon you.”

while he spoke uncompromisingly of the American fight against Al Qaeda, Mr. Obama never mentioned the words “terrorism” or “terrorist.” That was a departure from the language used by the Bush administration, but one that some Middle East experts suggested reflected a belief by the new administration that overuse had made the words inflammatory.

Paul D. Wolfowitz, a former top Bush administration official who was an architect of the war in Iraq and is a strong supporter of Israel, offered general praise for Mr. Obama’s address. “I could have used less moral equivalence, but he had to get through to his audience, and it’s in America’s interest for him to get through,” Mr. Wolfowitz said.

Mr. Obama’s stark statement that “the United States does not accept the legitimacy of continued Israeli settlements” is also likely to be seen as a sharp challenge to Israeli assumptions that existing West Bank settlements will always be allowed to remain.

It was noteworthy that the only Palestinian political group that Mr. Obama specifically mentioned was Hamas, the militant Islamic organization that won Palestinian legislative elections in 2006. Hamas governs Gaza, but is loathed by Israel. Mr. Obama called on Hamas to forswear violence and recognize Israel’s right to exist, but Middle East experts said that his mention was an acknowledgment that Hamas might have become a more important actor than the Fatah Party, controlled by Mahmoud Abbas, the Palestinian president. Mr. Obama said, “Hamas does have support among some Palestinians, but they also have to recognize they have responsibilities.”

Specifically, the senators ask Obama to encourage the Arab League to end its boycott of Israel and establish normal trade, tourism and athletic relations with the country, as well as hold diplomatic talks with Israeli officials. The letter also asks the Arab League to end its boycott of Israel and to cease propaganda campaigns that “demonize” the country. “Such gestures would send a powerful signal that Arab nations are committed to the peace process and could help usher in a new era of peace and security in the Middle East,” the letter reads.

The UN high commissioner for human rights, Navi Pillay, was even blunter, describing Iran's leader as "somebody who traditionally makes obnoxious statements" and who had done so once again.The speech almost certainly set back any rapprochement between the US and Iran, at least until the Iranian presidential elections in June, if not beyond.

Diplomats said Ahmadinejad's speech may have been made with the elections in mind, but added it was unlikely that he would have delivered it without the approval of Iran's supreme leader, Ayatollah Ali Khamenei.

Ahmadinejad traced the history of racism in the modern world to the control of a few powerful states and string-pulling Zionists behind them. "Following world war two, [powerful states] resorted to military aggression to make an entire nation homeless, on the pretext of Jewish suffering and the ambiguous and dubious question of the Holocaust .... and they helped bring to power the most cruel and repressive racists in Palestine," he said.

It was at that point that the EU delegates in the chamber rose in unison and filed out, to the competing jeers and applause of the crowd on the assembly floor and in the galleries. They did not stop to hear Ahmadinejad describe Israelis as "those racist perpetrators of genocide".

As soon as the Iranian president had finished speaking, the Europeans walked back into the hall, to make the point that their quarrel was with him and not the aims of the conference.

Ahmadinejad later told a press conference his sole aim was to promote "international love and tolerance". As expected, he gave no hint of compromise over Iran's nuclear programme, declaring the question "closed".

"The right always says that we don't have a partner on the Palestinian side, as an excuse for the lack of progress. Now we are not a partner," Livni said.

She added that Kadima would have joined a unity government had Lieberman been prevented from joining.

In an interview Wednesday with Israel's Channel 2 TV, Lieberman went beyond his criticism of peace talks with the Palestinians and said he opposed any withdrawal from the Golan Heights in return for a peace deal with Syria.

"I am very much in favor of peace with Syria, but only on one basis - peace in return for peace," he said, adding there would be "no withdrawals from the Golan during my time and hopefully not at any time."

Former Prime Minister Ehud Olmert's government held indirect peace talks last year with Syria, which demands that Israel return the Golan as a condition for any deal. Erdan said Lieberman's statement conformed with the government's platform. "We said during the election campaign that we oppose concessions on the Golan Heights," he said. "You have to get used to it - this is the position of most of the public."

A source in Prime Minister Benjamin Netanyahu's party confirmed Wednesday that his new government intended to distance itself from U.S.-sponsored understandings on working towards a Palestinian state.

Asked about ultra-nationalist Lieberman's remark that Israel was no longer bound by the 2007 framework, the source replied: "There is no problem here. He [Lieberman] is distancing himself from the Annapolis label, as the government intends to do."

Hadash MK Afu Aghbaria, meanwhile, urged the international community to impose a diplomatic embargo on Israel in the wake of Lieberman;s statements. "It isn't surprising that a racist foreign minister would produce such vehement suggestions, only a day after the new government was formed," Aghbaria said.

Palestinian President Mahmoud Abbas responded to the swearing-in of Benjamin Netanyahu's government by saying: "We want to tell the world that this man doesn't believe in peace and therefore we cannot deal with him... the world should put pressure on him."

Speaking to what the Associated Press describes as a roomful of "cringing diplomats", the new foreign minister said Israel was not bound by the Annapolis peace talks. These were initiated in November 2007 to solve the Israeli-Palestinian conflict and involved around 40 countries.

"The Israeli government never ratified Annapolis; nor did [the] Knesset," said Lieberman, promising to honour only the US-initiated "road map" of 2002, which has long been in stalemate amid accusations from both sides.

In today's speech, Lieberman was more amiable towards Egypt, which he described as an "important element in the Arab world". This is an improvement on a few weeks ago, when he said the Egyptian president, Hosni Mubarak, could "go to hell".

In what appears to be a concession to win Labour's support, he and Barak agreed a joint platform that would commit the new government to working for a "comprehensive regional agreement for peace and co-operation in the Middle East", according to the Israeli press.Though that platform says the new government will work towards peace with its neighbours and will respect Israel's international agreements, there was no explicit mention of the creation of an independent Palestine.

Binyamin Netanyahu, head of the right-wing Likud party, will be prime minister and possibly finance minister.• Avigdor Lieberman, the far-right head of the Israel Our Home party, who campaigned in favour of a law demanding all Israel's Arabs swear an oath of loyalty to the country as a Jewish state, will be foreign minister.• Ehud Barak (below), head of the Labour party, who last month seemed resigned to going into opposition, will stay on as defence minister.• Eli Yishai, the head of the ultra-Orthodox Shas party, will be interior minister.

Mr. Netanyahu says he wants to give Palestinians freedom to govern themselves, but won't grant them all the powers of statehood, such as an independent army that could pose a threat to Israel. "We do not want to govern the Palestinians," he said. "We want them to live in peace and govern themselves absent a handful of powers."

Mr. Netanyahu has said he is ready to resume negotiations immediately on three parallel tracks dealing with political, economic and security issues, but the Palestinians have said they won't resume negotiations until Mr. Netanyahu accepts their right to statehood.

"By failing to endorse the two-state solution, Benjamin Netanyahu missed yet another opportunity to show himself to be a genuine partner for peace," Mr. Erekat said after the meeting. "Calling for negotiations without a clearly defined end-goal offers only the promise of more process, not progress."

Mr. Obama spoke out against Israel's expansion of Jewish settlements. Construction of settlements in the West Bank has continued despite pledges to halt such building by former Prime Minister Ariel Sharon. "Settlements have to be stopped in order for us to move forward," Mr. Obama said.

Mr. Netanyahu said after the meeting that Israel would halt settlement expansion as part of a mutual process in which the Palestinians also made concessions, such as cracking down on militants.

Though Israel has shown little interest in the Arab peace initiative, Mr. Netanyahu appears to share the belief that, in the face of an ascendant Iran, there is a new window of opportunity. "In the life of the Jewish state there's never been a time when Arabs and Israelis see a common threat like we see today," he said.

On Iran, Mr. Obama said the U.S. will give talks more time, but that there must be a "clear timetable at which point we say, these talks aren't making any progress."

Mr. Netanyahu has been seeking clear timetables for U.S. diplomatic outreach toward Tehran, and assurances that sanctions would follow if negotiations fail. Israel fears Iran is within months of producing enough fissile material to produce an atomic bomb, though Israeli and U.S. intelligence officials believe it could take Iran years to assemble one.

Speaking of the development and deployment of a nuclear weapon, he said, “We’re not going to create a situation in which talks become an excuse for inaction while Iran proceeds.” Mr. Obama added that he intended to “gauge and do a reassessment by the end of the year” on whether the diplomatic approach was producing results.

He said he expected international talks with Iran, involving six nations including the United States, to begin shortly after the Iranian elections in June, with the possibility of “direct talks” between the United States and Iran after that.

“The logic of Netanyahu’s argument is, ‘What do you do if your power of diplomacy and toughened sanctions doesn’t work?’ ” said Aaron David Miller, a former Middle East negotiator in both Democratic and Republican administrations. “Anyone who was expecting a major rift in the U.S.-Israeli relationship is going to be disappointed.”

Mr. Netanyahu did not explicitly embrace a two-state solution, as Mr. Obama had hoped. Rather, he said, “I want to make it clear that we don’t want to govern the Palestinians; we want to live in peace with them.”

Mr. Obama, meanwhile, pressed Mr. Netanyahu to freeze the construction of Israeli settlements on the West Bank. “Settlements have to be stopped in order for us to move forward,” Mr. Obama said. “That’s a difficult issue. I recognize that. But it’s an important one, and it has to be addressed.”

Mr. Miller, the former Middle East negotiator, characterized the session as “President ‘Yes We Can’ sitting down with Prime Minister ‘No You Won’t.’ ”

Israeli military officials, speaking on the condition of anonymity under army rules, said that Palestinian forces would now be able to operate 24 hours a day in the cities of Ramallah, Qalqilya, Bethlehem and Jericho, and would have to coordinate less with Israeli forces in the area, implying that the forces would reduce their own nighttime raids on those cities.

Israeli forces have been carrying out arrest raids almost nightly. On Wednesday night, for example, seven Palestinian suspects were arrested, and on Monday night six were arrested, including three from Qalqilya.

Military officials emphasized that the army would continue to operate in all the West Bank, but one said that the army would now enter the four cities only “in case of an urgent security need, and in accordance with security assessments.”

Two recent deadly shootouts in Qalqilya between Palestinian forces and armed Palestinian militants of the Islamic group Hamas have been mentioned as evidence of a new determination on the part of the Palestinian security apparatus. Four police officers, four militants and a bystander were killed in the clashes that occurred during attempts to arrest the gunmen.

In addition to removing the checkpoints, Israel says it has agreed to issue more V.I.P. cards for Palestinian businessmen, to ease their passage over the crossings into Israel.

In some areas of the West Bank, Palestinians are surviving on as little as 10 to 15 litres a person each day, which is at or below humanitarian disaster response levels recommended to avoid epidemics. In Gaza, where Palestinians rely on an aquifer that has become increasingly saline and polluted, the situation is worse. Only 5%-10% of the available water is clean enough to drink.

Gidon Bromberg, the Israeli head of Friends of the Earth Middle East, said there was a clear failure to meet basic water needs for both Israelis and Palestinians, and that Israelis were taking "the lion's share".

In Gaza, the continued Israeli economic blockade played a key role in preventing maintenance and construction of sewage and water projects. In the West Bank, Israeli military controls over the Palestinians were a factor, with Palestinians still waiting for approval on 143 water projects.

Yossi Dreisen, a former official and now adviser at the Israeli water authority, disputed the Bank's findings and said many remarks in the report were "not correct". He produced figures suggesting Israeli water consumption per person had fallen since 1967, when Israel captured and occupied the West Bank, while Palestinian consumption had risen.

There is not enough water in this area," said Dreisen. "Something must be done. The solution where one is giving water to the other is not acceptable to us."However, Fuad Bateh, an adviser to the Palestinian water authority, said Israel continued to have obligations under international law as the occupying power and should allow Palestinians water resources through an "equitable and reasonable allocation in accordance with international law".

Palestinians had not been allowed to develop any new production wells in the West Bank since the 1967 war.

Both Israeli Arab and rightist political leaders blasted the speech as political spin, while President Shimon Peres praised it as "strengthening Israel's international position and opening the door to direct peace negotiations." "The Prime Minister's speech was a true and courageous speech that referred to the main issue - the establishment of a demilitarized Palestinian state alongside the state of Israel, the state of the Jewish People," said Peres.

MK Aryeh Eldad (National Union) accused Netanyahu of violating his own promises and said the nationalist camp could no longer support his policies. "Today the prime minister lost the leadership of the nationalist camp by not only transgressing his own red lines, but by converting from his own religion," said Eldad of Netanyahu's declaration that he would accept the creation of a Palestinian state so long as the international community could guarantee it remains demilitarized. "With the expression 'demilitarized Palestinian state,' Netanyahu is trying to eat a pig butchered in a kosher way," he added. "There is no such thing as a demilitarized state, Netanyahu knows very well that no political force on earth can prevent a country from arming itself or signing military treaties like any other country."

MK Zevulun Orlev, of the Jewish Home party, said that the policy represented a drastic change in stance and was an affront to the coalition agreement.

But the White House called the policy outline an "important step forward", as did French Foreign Minister Bernard Kouchner.

In Gaza, Hamas spokesman Sami Abu Zuhri described the speech as "racist" and called on Arab nations to "form stronger opposition" towards Israel.

Mr Erekat added: "The peace process has been moving at the speed of a tortoise. Tonight, Netanyahu has flipped it over on its back."

A White House statement said Mr Obama "believes this solution can and must ensure both Israel's security and the fulfilment of the Palestinians' legitimate aspirations for a viable state, and he welcomes Prime Minister Netanyahu's endorsement of that goal".

In his own keynote Middle East speech in Cairo on 4 June, Mr Obama stressed that he wanted all settlement activity to stop. But Mr Netanyahu said settlers were not "enemies of peace" and did not move from his position of backing "natural growth" in existing settlements.

The settlers group Yesha condemned Mr Netanyahu's speech: "We deplore that the prime minister has agreed to the creation of a demilitarised Palestinian state after he has said for years that such a state, even demilitarised, would be a threat to Israel."

Nabil Abu Rdainah, a spokesman for Mahmoud Abbas, the Palestinian president, dismissed the speech, saying: "Netanyahu's remarks have sabotaged all initiatives, paralysed all efforts being made and challenges the Palestinian, Arab and American positions."

Saeb Erekat, the Palestinians' senior negotiator, called on Obama to intervene to force Israel to abide by previous interim agreements that include freezing settlement activity in the West Bank. "The peace process has been moving at the speed of a tortoise. Tonight, Netanyahu has flipped it over on its backm," he said.

This is the first occasion that Netanyahu has endorsed the creation of a Palestinian state, but many see a disarmed Palestinian state as handing too much power to Israel. "Netanyahu did not accept the principle of a two-state solution," Lamis Andoni, Al Jazeera's Middle East analyst, said. "He reduced the concept of a Palestinian state to that of a demilitarised entity that would remain under Israeli control. 

"This is at best a formula to establish a Palestinian Bantustan that will not end the Israeli occupation but would legitimise Israeli control."

The Palestinians have said that they will not restart negotiations unless Netanyahu publicly backs the two-state solution and stops the building of Jewish settlements on Palestinian land.

He said there would be an end to new settlement building, but vowed that Jerusalem would remain undivided. Addressing Palestinian, Netanyahu urged them to recognise Israel as a Jewish state. "Israel is the nation state of the Jewish people and so it shall remain," he said.