Palestinian refugees should capitalize on the wave of popular revolts in the Middle East by massing peacefully on the borders of Israel until it gives in to their demands, Libyan leader Muammar Gadhafi said on Sunday.

Gadhafi is respected in many parts of the Arab world for his uncompromising criticism of Israel and Arab leaders who have dealings with Israel, though some people in the region dismiss his initiatives as unrealistic.

He was giving his first major speech since a popular uprising in neighboring Egypt forced President Hosni Mubarak to resign, an event which electrified the Arab world and prompted speculation that other Arab governments could also be toppled.

"Fleets of boats should take Palestinians ... and wait by the Palestinian shores until the problem is resolved," Gadhafi was shown saying on state television. "This is a time of popular revolutions."

"We need to create a problem for the world. This is not a declaration of war. This is a call for peace," he said in a speech given to mark the birthday of the Prophet Mohamed, a holy day in the Islamic calendar.

He also said: "All Arab states which have relations with Israel are cowardly regimes."

Palestinians have long demanded that refugees who fled or were forced to leave in the war of Israel's creation in 1948 should be allowed to return, along with their descendants.

Israel says any resettlement of Palestinian refugees must occur outside of its borders.

Gadhafi also issued a call to Muslim countries to join forces against Western powers. He said the world was divided into white, denoting the United States, Europe and their allies, and green for the Muslim world.

"The white color has decided to get rid of the green color," Gadhafi said. "These countries should be united against the white color because all of these white countries are the enemies of Islam."

He said violent acts committed by Osama Bin Laden's al Qaeda network went against Islam because they killed innocent people. But he said there was a political explanation for the emergence of militant Islamists.

"Why did this movement emerge? Regardless of its behavior, in my analysis this movement appeared in response to the American arrogance towards the Islamic nation and in response to its hegemony of the Islamic world," Gadhafi said.

"It was a response to ... the submission of rulers in the Islamic world, the subservience of rulers in the Islamic world to this arrogance from Europe and the United States," he said.

Gadhafi has for decades challenged what he describes as Western imperialism. His oil exporting country spent years under international sanctions for seeking banned weapons and sponsoring militant groups.

These were lifted in 2004 when Gadhafi renounced his previous activities, though he still frequently deploys his colorful rhetoric against the West.