President Obama yesterday embarked on his most daunting diplomatic challenge yet by telling Israel to take “difficult steps” towards peace, allow a Palestinian state and halt settlement expansion on occupied land.

His talks with Binyamin Netanyahu, Israel’s hardline Prime Minister, marked the start of an intensive focus on the Middle East. Mr Obama hopes to re-start a peace process that has stalled under a succession of US presidents.

After more than two hours of discussions at the White House Mr Obama said that it was in the interests of every country, including the US, to “achieve a two-state solution in which Israelis and Palestinians are living side by side in peace and security”.

He added: “I suggested to the Prime Minister that he has an historic opportunity to get a serious movement on this issue during his tenure. That means that all the parties involved have to take seriously obligations that they have previously agreed to.”

Such obligations, he said, had been “outlined in the road map” agreed with the US in 2003 and meant that building work by Jewish settlers on Palestinian land must cease. “We have to make progress on settlements,” Mr Obama said. “Settlements have to be stopped.”

Mr Netanyahu has so far refused to endorse full Palestinian statehood. He has suggested that settlements needed to be allowed to grow naturally, insisting that the priority should be to deal with the “existential threat” to Israel posed by a nuclear Iran.

At the White House he again pointedly sidestepped the issue of Palestinian sovereignty, indicating that he favoured a more limited form of self-government for Palestinians. While promising to resume peace talks immediately he said that any deal depended on the acceptance across the Arab world of Israel’s right to exist.

At their joint press appearance Mr Netanyahu had little to say about Palestinians but a great deal about Tehran’s nuclear ambitions: “We want to move simultaneously and in parallel on two fronts: the front of peace and the front of preventing Iran from acquiring nuclear capability.”

Mr Obama, having admitted in March that Mr Netanyahu’s return to power did not make peacemaking any easier, knows that the Prime Minister has since been rattled by signs that he may adopt a tougher approach towards Israel — while softening his policy on Iran. Two weeks ago CIA director Leon Panetta is said to have met Mr Netanyahu in Jerusalem where he was told Israel was only willing to wait around a year for the US policy of re-engaging Iran to work. There have been regular hints that Israel might consider a military airstrike to stop Tehran getting nuclear capability.

At his meeting with Mr Netanyahu Mr Obama offered Israel reassurance that there was “deepening concern” about Iran and he was keeping open a “range of steps, including much stronger international sanctions” if Tehran fails to respond.

While refusing to set an artificial deadline for any negotiations with Iran about ceasing uranium enrichment, he said: “We’re not going to have talks forever . . . We should have a fairly good sense by the end of the year as to whether they are moving in the right direction.”

The White House talks had been billed as a confrontation between two sharply conflicting approaches to resolving the 60-year conflict between Israel and Palestinians. Mr Netanyahu — a sometimes abrasive figure who on his first visit to the White House in 1996 so infuriated Mr Clinton that the then President vented a stream of profanities once his guest had left — poured on the charm yesterday, praising Mr Obama as a “great leader for America, a great leader for the world and a great friend of Israel”.

Times Recommends

• African migrants desperate for a better life
• Karzai, the Anglophile who alienated the West
• They killed my family, but I rise again