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Despite the political impasse in Israel and the uncertain future of the Middle East peace process, former U.S. president Bill Clinton says he is still hopeful that Israel and the Palestinians can come to a two-state solution.

"Palestinians are having more babies than the Israelis," Clinton told CNN's Larry King Live on Tuesday.

"The Israelis have to decide whether they want to share the future in a positive way with a constructive Palestinian state, so that they have a Jewish democracy, which is what Israel was set up to be," he said.

"And if they don't, then they'll have to disenfranchise the Palestinians living outside of old Israel, pre-'67 Israel, and they won't be a democracy anymore. Or they will let everybody vote and they won't be a Jewish state anymore. That hasn't changed."

Clinton said the regional landscape is more conducive to a political arrangement than ever before.

"The other thing that has happened that's really better now is the external environment is so much better," the former president said.

"The king of Saudi Arabia and I think more than 20 other Muslim countries in the whole Arab Middle East, with the exception of Syria, has been out there strongly supporting a peace process and basically saying, if you will give the Palestinians a state in the West Bank and Gaza, with appropriate compromises - essentially, what I proposed in 2000 that Israel accepted then - we will strongly support it. We will urge the Palestinians to sign it. We will help them succeed economically. We will relocate [the refugees]."

"I think there's hope, and I don't see what the alternative is," Clinton told CNN.

While he was president in 2000, Clinton took part in the Camp David summit alongside former Palestinian Authority Chairman Yasser Arafat and then Israeli prime minister Ehud Barak, aimed at reaching a final settlement between Israel and the Palestinians.