Foreign Minister Tzipi Livni said Thursday that the creation of a Palestinian state would serve as a solution to national aspirations of Israel's Arab citizens.

"Once a Palestinian state is established, I can come to the Palestinian citizens, whom we call Israeli Arabs, and say to them 'you are citizens with equal rights, but the national solution for you is elsewhere,'" Livni was quoted by Army Radio as saying to students at a Tel Aviv high school.

"The idea is to maintain two states for two peoples, that is my path to a democratic nation," she added.

When asked by a students why Israel continues to endanger itself in the face of Hamas when the Islamist group refuses to release captured soldier Gilad Shalit, Livni said: "If people think I can just go and release Gilad Shalit or that the government can, but just doesn't want to, it's not true."

"The government must be responsible for the soldiers it sends out. We all want to avoid fatalities but part of what it means to fight is that we have no other choice. We can't also bring everyone home," she said.

Last month, Livni infuriated Israeli Arab lawmakers when she said: It must be clear to everyone that the State of Israel is a national homeland for the Jewish people."

At the time, Livni added that the national demands of Israeli Arabs should end the moment a Palestinian state is established.

In response to Livni's comments, Culture, Sports and Science Minister Ghaleb Majadele said, "The roots of the Israeli Arab citizens of Israel were planted before the state was established. They are residents of this country with rights; their residency and citizenship are not open for negotiation."

"Anyone who raises the idea of transferring the Arab population in Israel to the territories of the state of Palestine is anti-democractic," the Israeli Arab minister added.