Israeli PM Benjamin Netanyahu has offered to renew a partial freeze on settlement building, if the Palestinians recognise Israel as "a Jewish state".
A Palestinian spokesman has rejected the condition.The move further threatens peace talks that were already close to collapse.
Palestinian officials say they will pull out of talks if Israel refuses to extend its partial freeze on settlement building in the occupied West Bank.
Palestinian officials have in the past argued that this would compromise the rights of 20% of the Israeli population that is not Jewish, and cancel the right claimed by Palestinian refugees to return to Israel.
Speaking at the opening of the winter session of the Israeli parliament, Mr Netanyahu said: "If the Palestinian leadership will unequivocally say to its people that it recognises Israel as the national state of the Jewish people, I will be ready to convene my cabinet and ask for another moratorium on building."
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