Obama called for the two sides to negotiate a two-state solution "based on the 1967 lines with mutually agreed swaps, so that secure and recognized borders are established for both states," making him the first sitting president to say that the final borders should be based on the 1967 boundaries.

On security arrangements, he said a future Palestinian state must be non-militarized, and the "full and phased withdrawal" of Israeli forces should be geared to the ability of Palestinian security forces and other arrangements as agreed to prevent a "resurgence of terrorism," stop the infiltration of weapons and provide effective border security.

Obama acknowledged that the approach alone will not resolve the conflict as two "wrenching and emotional issues" will remain — the future of Jerusalem and the fate of Palestinian refugees.

"But moving forward now on the basis of territory and security provides a foundation to resolve those two issues in a way that is just and fair, and that respects the rights and aspirations of both Israelis and Palestinians," he argued.