Hamas, which controls Gaza and is linked to the Palestinian Authority in a unity accord, has called the president's proposals a "total failure," saying the group will not recognize Israel's occupation under any circumstances."

Netanyahu said Israel wants, and would make "generous compromises" for peace, but one based on "basic realities." He rejected any settlement based on 1967 borders, calling such lines "indefensible," and made clear Israel will not negotiate with a Palestinian government that includes Hamas.

"Hamas has just attacked you, Mr. President, and the United States, for ridding the world of [Osama] bin Laden," said Prime Minister Netanyahu. "So Israel obviously cannot be asked to negotiate with a government that is backed by the Palestinian version of al-Qaida. I think President [Mahmoud] Abbas has a simple choice. He has to decide if he negotiates or keeps his pact with Hamas or makes peace with Israel."

Netanyahu said the Palestinian refugee issue will have to be resolved in the context of a Palestinian state, but "certainly not in the borders of Israel."

The Israeli leader said while there are differences "here and there," there is what he called an overall direction for the U.S. and Israel to pursue what he called a "peace that is defensible" between Israel and Palestinians.

President Obama said he and Netanyahu also discussed changes sweeping the Middle East, and agreed there is a moment of opportunity that can be seized as a consequence of the Arab Spring, but acknowledged there are significant perils as well.