Israel's character is it's own business. It is not up to the Palestinians to define it, Palestinian Authority Prime Minister Salam Fayyad said Thursday, when asked about Prime Minister Benjamin Netanyahu's demand the Palestinians recognize Israel as a Jewish state.

"Israel's character is Israel's business and nobody else's," Fayyad says in an interview with Haaretz.

"The character of Israel, as the total character that Israel would like to have, is Israel's own choice. It characterizes itself in the way that it wishes to characterize itself. Why raise it now? Why would you want to settle it now when we haven't settled anything else? Needless to say, however which way Israel decides to characterize itself as a product of the political system of Israel, is [up to] Israel. This condition wasn't mentioned in the Oslo Accords, and I see no room to set new conditions or preconditions for the negotiations. Until today all we received in exchange for recognizing the two-state solution and stopping the armed struggle was your recognition of the Palestine Liberation Organization as the Palestinian people's representative," he says.

Fayyad seems to prefer to talk about economic issues rather than politics. His critics say he gives tail wind to the "economic peace" touted by his Israeli counterpart, Netanyahu.

Fayyad is aware of these jabs and says his purpose is to prove to the world that the Palestinians can run a state no worse than anyone else. He is convinced that proper government and a growing economy are the best way to establish an independent Palestinian state. Fayyad says he has managed to gain the donor states' - first and foremost the United States and the European Union - confidence, and that Saudi Arabia is about to grant the PA $200 million.

"Establishing a proper government is a goal in itself, but also a means to end the occupation," Fayyad says.

Fayyad notes that the Palestinian economy's growth has exceeded all expectations, but expresses regret it has taken Israel so long to remove dozens of roadblocks, which have stymied the PA's economic development for many years. He cannot understand why Israel bothers with petty details such as this roadblock or another, while it has admitted they were not necessary.

It is also time the Israel Defense Forces stopped its frequent incursions into Palestinian cities every Monday and Thursday, he says. This sabotages the PA's efforts to enforce law and order and blatantly contradicts Israel's commitment to adhere to the road map, he says.

Fayyad sees no sense in maintaining the blockade of the Gaza Strip, either. Everyone admits that the status quo doesn't work, so why is Israel perpetuating this policy, he asks.

Asked whether he could say with full confidence that PA security branches are reliable, Fayyad says candidly that at first he saw the desire to provide the Palestinians with security forces as an impossible mission.

Although he was aware that he would be accused of being a subcontractor for the Israeli security forces, Fayyad says he decided that it was imperative to open a new era and persuade his people that building up a security force was first of all for their own safety and their children's.

"I realized that security was the glue between a thriving economy and proper government and achieving liberty for the Palestinian people," he says.

The expansion of the Israeli settlements in the West Bank undermined the Palestinians' confidence in the peace process, Fayyad says.

"They see that 16 years after the Oslo agreement and six years after the road map, the settlements are still growing and Israel is ignoring its commitments. I believe in a two-state solution and stopping the settlements is the key to achieving that goal," he says.

Q: Foreign Minister Avigdor Lieberman said the Fatah conference resolutions cast grave doubts over the possibility of reaching a final-status agreement. Defense Minister Ehud Barak also expressed disappointment with them.

"Your partner to the final-status agreement is the PLO," says Fayyad.

Israel entered negotiations with the PLO and received its commitment to stop the violence, he says. "There is no other partner."

The Fatah conference was a demonstration of power and bolstering the ranks of the PLO's most important organization, he says. "After many years of difficulties, Fatah managed to gather in Palestine representatives from all over the world. I'm not a member but I sat at the opening session and was moved," he says.

Fayyad commended Israel for allowing the Fatah delegates to come to Bethlehem and denounced Hamas for prohibiting the Gaza delegates from attending an event of primary national importance.

Fayyad says the peace talks should resume from the point where they were cut off during Ehud Olmert and Tzipi Livni's government. There's no sense in starting everything from the beginning, he said. "I too object to putting off the talks on Jerusalem and the refugees to the distant future. The conflict must be ended, and do to so we must find a solution to all the core issues," he says.

Ultimately, the international community and the United Nations' intervention will be necessary to achieve peace, Fayyad says. "We rely on international law and the international consensus that the territories are occupied land. I believe President Obama will present his peace plan soon. This is an opportunity we must not miss."

Regarding kidnapped IDF soldier Gilad Shalit, Fayyad says "I fully appreciate the pain and the agony, for sure. Particularly on the part of the parents and relatives." Adding that he is also sympathetic to the plight of the Palestinian prisoners' parents, with whom he speaks every day. "A mother's pain is a common language of all mothers. The principle of the deal is clear to both sides, and it's time to end this affair. Releasing prisoners is not something to be postponed to the final agreement and must be dealt with today," he says.