(CNN) -- Israeli Prime Minister Benjamin Netanyahu said Sunday that Israel could accept a peace agreement with a "demilitarized Palestinian state" as its neighbor. Israel PM Benjamin Netanyahu said he would agree to peace with Palestinians. In his first speech accepting the concept of a two-state solution for the Middle East conflict, Netanyahu set rigid conditions for moving forward. Among them: unequivocal Palestinian recognition of Israel as the Jewish national state with Jerusalem as its capital, and full demilitarization for a Palestinian state -- no army, no rockets or missiles, no control of airspace. "I say this in a clear voice -- if we receive a guarantee of this demilitarized unit, we will be prepared to reach agreement to a demilitarized Palestine side by side with the Jewish state," Netanyahu said, according to a direct translation of his speech at Bar-Ilan University's Begin-Sadat Center for Strategic Studies in Ramat Gan, Israel.
@highlight
NEW: President Obama calls Benjamin Netanyahu's speech "important step forward"
@highlight
Palestinian legislator accuses Netanyahu of calling for creation of ghetto state
@highlight
Demilitarized state could not have army or control its airspace, he says
@highlight
Before Sunday, Netanyahu had not endorsed a two-state solution
Obama
@placeholder pledged to continue working with all parties "to see that they fulfill their obligations and responsibilities," the statement said.
Jewish
He prompted applause with his statement that "the land of Israel is homeland to the @placeholder people, and that is the basis of our right to it."