Prime Minister Benjamin Netanyahu is willing to begin negotiations with the Palestinians without demanding they first recognize Israel as a Jewish state, sources in his office said on Sunday.

However, the sources added that Netanyahu would condition future developments for a peace settlement on this demand.

The U.S. State Department on Sunday rejected as unacceptable the prime minister's demand last week that Palestinians recognize Israel as the state of the Jewish people as a condition for renewing peace talks.

The State Department released statements saying that the United States would continue to promote a two-state solution. In Ramallah, Mitchell met with Palestinian Authority President Mahmoud Abbas.

Meanwhile, Defense Minister Ehud Barak told Netanyahu on Sunday that Israel must present its own regional peace initiative.

Barak said that in light of American support for the Arab peace initiative, Israel must also formulate its own initiative to present to the U.S. and the Arab world. He said Israel must offer an outline for progress in talks with the Palestinians, Syria and the other Arab states.

Barak made the comments during a special meeting at the Prime Minister's office, at which Netanyahu, Foreign Minister Avigdor Lieberman, national security adviser Uzi Arad and senior officials from the defense establishment were present.

According to sources, Barak has shown disagreement behind closed doors to Netanyahu's call for Palestinians to recognize Israel as a Jewish state as a precondition for the renewal of peace talks.

The defense minister has so far refrained from publicly criticizing Netanyahu, but associates said Saturday that he is bound by the Labor Party platform, which backs the establishment of a Palestinian state.