Well, Palestinians need a state to be known as Palestinian State and only Palestinians are natural citizens of this state. So, Israel may demand and is right if Israel demands that she be called a Jewish State as this State will also be for Jews as natural citizens of Israel. The other recognisations of any body that resides in these two presumed States will be based on the (a) 'Act of Knesset: the Israeli Law makers, or (b) Act of Palestinian Law making order. So, it is right for both parties to recognise each other if both want peace, otherwise, there will be no peace. Obama should know that he has only fews years as a President after which his policies may come to an end. The nest USA President may go a different way, as Obama did against Bush policies, and against Bush's love for Israel.
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from the article: Israel and Palestinians clash over agenda for direct peace talks