Israeli Prime Minister Benjamin Netanyahu said Tuesday Israel would be generous with the size of a Palestinian state, but would not return to the 1967 borders or divide the city of Jerusalem.

"Israel will be generous on the size of the Palestinian state, but will be very firm on where we put the border with it. This is an important principle," he said in a landmark address to the US Congress.

"We recognize that a Palestinian state must be big enough to be viable, to be independent, to be prosperous."

But he warned that Israel could not return to the "indefensible" borders which existed in 1967, as US President Barack Obama has insisted should be the basis for negotiations.

"Any peace deal must take into account the dramatic demographic changes that have occurred since 1967. The vast majority of the 650,000 Israelis who live beyond the 1967 lines reside in neighbourhoods and suburbs of Jerusalem and greater Tel Aviv."

And he further warned: "Jerusalem must never again be divided. Jerusalem must remain the united capital of Israel."

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