Calling for a population and territory exchange in order to achieve peace with the Palestinians, Deputy Foreign Minister Daniel Ayalon said in an interview given to the newspaper Asharq Al-Awsat that the Palestinians need to recognize the right of Jewish self-determination in Israel, just as they demand their own right to self-determination.

During the interview with the London-based paper, Ayalon stressed that while Israel defines itself as a Jewish state, this does not mean non-Jews cannot live there or enjoy full rights as citizens.

Ayalon also reiterated his support for territorial and population exchanges, particularly in the southern Galilee area known as "the Triangle" which borders the West Bank.

When asked whether the territory exchange would also include cities like Nazareth, the deputy foreign minister clarified that he was referring to "contiguous territory."

"What is important is that the idea be accepted, giving Jews a positive message [about] peace, as most Jews will live in Israel and most Palestinians in Palestine," he said. "I am not saying we want to be rid of Israeli Arabs, but we know from experience that countries are being divided on the basis of demography."

Ayalon said the Israeli Arabs who will become part of Palestine will contribute to the Palestine economy. The deputy foreign minister also rejected claims that settlements are an obstacle to peace. "We have shown in the past that settlements do not affect the final results - and proof of this is the withdrawal from Sinai and from the Gaza Strip," Ayalon said.

"From our point of view [an agreement] means two states, Israel and Palestine, living side by side in stability and security, in coordinated cooperation," he added.

Meanwhile, Ayalon spoke yesterday in Givatayim, where he accused the Palestinian Authority of inciting against Israel. Describing Palestinian Authority President Mahmoud Abbas as "no different from [Yasser] Arafat, who called for a resumption of terrorism at the Fatah conference," Ayalon said that "on the one hand [Abbas] speaks of peace and wants gestures of good will, but on the other hand he attacks us."

The deputy foreign minister also said that funding from Saudi Arabia is used to organize incitement against Israel. Commenting on Iran's nuclear program, Ayalon said "we will not accept a nuclear Iran. This is not our fate. We need international cooperation and further sanctions. There are intensive efforts behind the scenes. The sanctions worked against Iraq and will work against Iran."

"Iran is not only clashing with Israel but with the entire world. This is the most serious threat to the world since Hitler," he said.

Ayalon, who is an MK for Yisrael Beiteinu, also commented on his party's efforts to pass legislation that would allow Israelis living abroad to vote in Israeli elections. He explained that the attitude toward Israeli expatriates has changed and that giving them voting rights will only bring them closer to the country.

Some in the audience protested, calling out: "They are not here and they will not decide whether we live or die." Others said that Foreign Minister Avigdor Lieberman has destroyed Israel's foreign policy.