Israeli President Shimon Peres called for the establishment of an independent Palestinian state, in an exclusive interview with CNBC on Tuesday.
"We have to enable the Palestinians to have an independent state of their own, and live like neighbors, not like enemies," said 89-year-old Peres, whose political career has spanned 66 years.
Peres added that barriers to the peace process were more "psychological than real".
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"I think the greatest problem we have is skepticism and a belief that peace is impossible… To have peace we have to overcome the problem," Peres said.
Munib Rashid al-Masri, a Palestinian and Jordanian statesman, said Peres and he agreed that Israel must withdraw from the United Nations-designated occupied territories.
"When I sit with him, I say 'Mr. Peres, end the occupation, stop building settlements and give us a timetable for the withdrawal.' And he agrees with this," al-Masri told CNBC.
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Like Peres, al-Masri is a veteran politician, and has thrice turned down offers to become prime minister of the Palestinian Authority.
"I told him [Peres], between you and I, we have 175 years. Let's do it, let's give the Palestinians their state… because you can do it Mr. President, you and I can do it, let's go and work on it," said al-Masri.
Al-Masri added that Israeli Prime Minister Benjamin Netanyahu was impeding Peres's push for a Palestinian state.
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"Peres's hands are tied because of Mr. Netanyahu," al-Masri said. "I believe that Mr. Netanyahu could make peace with the Arabs based on what I'm saying, but he needs courage and he needs the constituency in Israel to become bigger to convince him, to put pressure on him."
However, Peres refused to concede that Israel should spend less on defense, despite calls by Stanley Fischer, the Governor of the Bank of Israel, to do so in order to combat the country's soaring budget deficit.
"In Israel, when you have a government, the different departments spend in accordance to their needs. There is one need that is disproportionate — security. Security spending answers not to the size of your country, but to the size of your dangers. Our dangers are larger than other countries, so we have is to reduce the dangers," he said.
—Reported by Hadley Gamble, Written by Katy Barnato