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Deputy Foreign Minister Danny Ayalon on Saturday spoke out on the peace process, saying that a deal between Israel and the Palestinians could include a swap comprising both land and populations, according to an interview published in the London-based Arabic daily A-Sharq Al-Awsat.

Ayalon suggested that Israel would trade the concentration of Israeli Arab towns and villages in the north known as "the triangle" in exchange for Israeli settlement blocs in the West Bank. He added, however, that the swap would not include cities such as Nazareth.

Ayalon said such an exchange would maintain territorial integrity and demographics in both Israel and a Palestinian state.

"I am talking about land that has territorial contiguity," said Ayalon. "We don't want to get into surgical operations at this stage, but what is important is that the acceptance of this idea will give Jews a message of goodwill toward peace, since a majority of Jews will live in Israel and a majority of Palestinians will live in Palestine."

Ayalon denied that this was an attempt to rid Israel of the country's Arabs.

"I am not saying that Israel wants to get rid of Israeli Arabs, but we know from experience that countries are divided based on demographic lines, and a good example of that is the former Soviet Union," Ayalon told the newspaper.

"Israel's Arabs who are moved to Palestine will also help the Palestinian state economically."

He added that if the Palestinians want Israel to accept their self-determination, they must accept Israel's right to define itself as a Jewish state.

Israeli Arab MK Ahmed Tibi (United Arab List-Ta'al chairman) responded to Ayalon's remarks, saying they reflect a "complete defect in the understanding of the basic values of democracy and civil rights."

"We are not chess pieces," said Tibi. "We did not arrive in this country on planes and we did not immigrate here. We do not want to expel anyone from the borders of this country, but if someone wants to expel us, I will say this: He who got here last leaves first. That way, there will be fewer fascists in Israel."

Ayalon also addressed the issue of Israeli settlements in the West Bank, saying they are not an obstacle to reaching a comprehensive peace agreement with the Palestinians.

Ayalon said the claim that settlements affect peace is an exaggeration, and cited Israel's withdrawal from the Gaza Strip and Yamit, an Israeli settlement in the Sinai Peninsula that was evacuated in 1982 as part of the peace accord with Egypt.

The Deputy Foreign Minister added that Israel is willing to give up land for peace with the Palestinians, but declined to discuss specifically whether a deal would include all of the West Bank and East Jerusalem.

Meanwhile, Ayalon on Saturday also accused the Palestinian Authority of waging a campaign of incitement against Israel.

"The Palestinians are asking for gestures, but attacking us," Ayalon said at an event on Saturday in Givatayim. "At the university in London, Palestinians also shouted 'Slaughter the Jews' at me. The Foreign Ministry will act against these things. We documented this and will file complaints."

Ayalon went on to accuse Saudi Arabia of funding incitement against Israel.

The Deputy Foreign Minister also addressed the subject of Iran and said Israel would not accept a nuclear Iran. He urged the international community to work together to impose tighter sanctions and said intensive efforts to do so are occurring behind the scenes.

"The sanctions worked on Iraq and they will also work on Iran, whose regime is unstable," said Ayalon. "Iran is not only clashing with Israel, but with the entire world. This is the severest threat to the world since Hitler."