Speaking at the seventh conference in the INSS annual series "Security Challenges of the 21st Century," Prime Minister Benjamin Netanyahu addressed three principal issues: Iran, the Palestinian issue, and the global economic challenge.

[Translated from Hebrew]

Thank you for the opportunity to discuss several of the larger challenges we face, some of the largest ever faced by the State of Israel.

There are three such challenges, or at least three which I wish to discuss: Iran, the political process vis-à-vis the Palestinians and the global economy.

With regard to Iran, although there is internal dissent in Iran about the allocation of resources – how much comes in, how much goes out – there is no dissension in the Iranian regime, which continues to be controlled by Ayatollah Khamanei. There is no dissension, first about its aspirations to obtain military nuclear capability and there is also no dissension regarding the goal of erasing the State of Israel from the Earth. They say it all the time domestically of course, and occasionally also internationally.

As a result of the pressure of the sanctions regime, which we were an active party in leading, Iran reached two situations: on the one hand, it advanced its nuclear program; while on the other it suffered more and more sanctions and at a certain point, it came very close to producing fissile material for its nuclear program. But as a result of the pressure from the sanctions, and later on the Geneva agreement, it remains very close to nuclear weapons.

When I say, "remains close to nuclear weapons", it must be understood that there are three stations when producing nuclear weapons, in manufacturing the fissile material needed for nuclear weapons: producing enriched uranium at a level of 3.5%, uranium enriched to 20% and finally a quick jump to uranium enriched to 90%, which is the level needed for a weapon.

What the Iranians did, and this is what the agreement determined, is that they would return the train to the first station, but at the same time, they are upgrading the engine and strengthening it so that they will be able to break through all at once, without any stations in the middle, straight to 90%.

The agreement made in Geneva is not a good agreement – it is a bad agreement. In our estimation, this agreement delayed Iran by six weeks – no more – from where they were before, and therefore the test was and remains the final agreement, if such an agreement is achieved, to prevent Iran from acquiring nuclear weapons capability.

Of course Iran is trying to fool the West; it makes all kinds of statements and claims. You heard Rouhani in Davos recently. He said, for example, that they object to any intervention in Syria at a time when they are up to their necks in Syria. In fact, they are propping up Assad's regime. They actively participate in the mass slaughter there. He said they object to harming the innocent; in Iran hundreds of people every year are executed. Most of them are innocent, including dozens of people who were hung there last week. You would undoubtedly define most of them as innocent. They were executed.

He speaks of free access to technology; that's what Rouhani said in Davos at a time when Iran is denying its citizens to surf on the internet freely. And of course, he repeated his statement that Iran does not seek to obtain nuclear weapons, that it only wants nuclear power for peaceful purposes. Iran has directly invested at least 40 billion dollars in its nuclear facilities and nuclear program, and an additional 140 billion dollars as the cost of the sanctions. A country does not invest nearly 200 billion dollars in nuclear energy for peaceful purposes when it is so rich in other sources of natural energy. So clearly, and everyone understands this, I must say – the entire world understands this, even those who smile back at the smiles they receive. Everyone understands that Iran wants and aspires to acquire nuclear weapons, and we will only support an agreement that guarantees the complete dismantling of Iran's infrastructure and capabilities for military nuclear weapons.

Amos, I heard you say here that you do not sleep at night and that the Iranian issue occupies your thoughts: I can promise you that you can sleep a little better because this issue occupies my thoughts every day, all day. Another thing I can promise all of you: we will not let Iran develop its capability to produce nuclear weapons. This was and remains Israel's policy.

Now of course the Iranian threat is not just an unconventional threat; it is also a conventional threat which mainly focuses on missiles and rockets brought to the Iranian enclave which surrounds us, in an attempt to strangle us from two sides, from Lebanon and from Gaza. And of course, we will deal with this separately. I do not wish to say too much about this other than to say that we want to ensure that in the political negotiations with the Palestinians, we achieve two goals: one, we don't want, I don't want a binational state. I think that in this, I reflect the will of most citizens of Israel. And second, we do not want another country to be established here under Iran's sponsorship that fires missiles and rockets at us or that launches terror attacks on us. We need to achieve both these goals, not just one of them – both of them.

We just underwent very severe upheaval and after five years of controlled, responsible and clear-headed navigation, we will soon know if we can continue to negotiate with the Palestinians. The Americans are working to formulate the American positions, if they do. But I would like to emphasize that they are not Israeli positions, but rather American ones.

Israel does not have to agree to anything the Americans present, but we insist on two fundamental things – on many things, but I would like to emphasize two of them here today – in the negotiations with the Palestinians. The first is, of course, recognition of the Jewish state or the nation-state of the Jewish people. I would like to explain the reason for our insistence on this issue, because it is at the root of the conflict. This conflict has gone on for nearly 100 years. The date I choose to mark for its beginning is 1920, 1921 – one year after my late grandfather arrived in Jaffa. When he arrived, he made his way to the Jewish immigration office. In 1921, rioting Palestinian Arabs attacked that office; they attacked in Jaffa. There were no settlers there; there were no settlers as they are defined today. There were no territories. There was a basic objection to any Jewish presence, an opposition that grew and resulted in the attacks in 1929 in Hebron and of course the great riots of 1936-1939.

This struggle, which continued through the War of Independence and afterwards until 1967 – this struggle was not over the territories of Judea, Samaria and Gaza. Those were in Arab hands. This struggle was against the very existence of the Jewish state, against Zionism or any geographic expression of it, any State of Israel in any border. The conflict is not over these territories; it is not about settlements; and it is not about a Palestinian state either. The Zionist movement agreed to recognize a Palestinian state during the partition plan, and various governments also agreement later on to recognize a Palestinian state. But this conflict has gone on because of one reason: the stubborn opposition to recognize the Jewish state, the nation-state of the Jewish people. To end the conflict, they must recognize that in our land, this land, in the Jewish homeland, there are two peoples.

When we speak of an agreement, we speak of an agreement in which we are asked by the world and by the Palestinians to recognize the Palestinian nation-state. Can it be that they will not be asked to recognize the Jewish nation-state? After all, we are not strangers in this land or to this land; we have been here continuously for nearly 4,000 years – 3,800 years. This is the land where our identity was forged; this is our homeland; here is our country which was reborn. And the Palestinians must accept this. Otherwise, what we are being asked to do is allow for the establishment of a Palestinian state which will continue subvert the foundation for the existence of the Jewish state, which will try to flood us with refugees, which will advance irredentist claims from within the State of Israel's territory, territorial claims, national claims. And we say that the solution is two nation-states and mutual recognition of them.

It cannot be that Israel will be asked to complete one side of the equation and the Palestinians will not be asked to complete the other side of the equation. This is absurd. And therefore our first and most unshakable demand is recognition. Ending the conflict means not only waiving the right of return, but first and foremost recognition of the nation-state of the Jewish people, recognition of the Jewish state. If you wish, I would say that this is the first foundation for peace between us and the Palestinians.

Now, since you know very well that throughout these 90 years there was and continues to be unceasing incitement against the State of Israel – against the Zionist movement before the establishment of the country and then, without any difference between them, it continued both in the Palestinian Authority and in the Hamas. Actually, there is one difference: Hamas uses terror and the PA doesn't and that is important. But incitement and non-acceptance of the State of Israel unfortunately continue in both places. We see it in school books; we see it in schools; we see it in the Palestinian media, which as you know is controlled by the Palestinian government; we see this also in mosques, in sermons, in things that are regrettably said by Palestinian leaders internally.

Therefore, alongside the demand that I would say is an essential condition, although it is not enough to recognize the Jewish state because we cannot be sure that this recognition would take root in Palestinian society which has experienced and continues to experience this methodical incitement. And that is why there must also be robust security arrangements. These security arrangements must also include long-term IDF presence along the Jordan River and other security arrangements that fundamentally rest on the State of Israel, the IDF and Israel's defense system.

I think that if I had to summarize both these fundamentals, I would repeat what I said during my speech at Bar-Ilan: the most condensed version of the formula for a peace agreement with the Palestinians is a demilitarized Palestinian state that recognizes the Jewish state – a demilitarized Palestinian state that recognizes the Jewish state. We do not want to annex the Palestinians as citizens of the State of Israel and we do not want to control them, but naturally the Palestinian state must be demilitarized. This means that certain markers of sovereignty will have to be limited. Once a country is demilitarized, certain abilities are limited and this is essential – that is the real Middle East and that is the clear-minded, responsible framework for an arrangement.

I cannot tell you is this arrangement will take place. I said at another opportunity that in the Middle East, in order to achieve peace, you don't need two to tango, you need at least three. I know we are interested in continuing the negotiations, to try and reach this agreement. I know that the Americans are very interested in us reaching an agreement. At this moment, I cannot tell you is the Palestinian leadership is ready to deal with the concessions it will have to make. Everyone always speaks about the concessions that Israel will have to make; attention should be paid to the concessions that the Palestinians will have to make to reach an agreement that would last, that would provide us with a chance for coexistence here in peace and security. We will know shortly.

I said there was a third challenge and that was the global economy. It is not only a challenge, it is a tremendous opportunity. We are in fact experiencing two upheavals: the regional upheaval, which can be seen once a century; and a global upheaval. And it is not only the global economic upheaval, which Israel unusually and extraordinarily overcame because of cool-headed and responsible policies; there is a huge opportunity and a much larger revolution.

We are in the age of knowledge, in an outburst of knowledge, and the economy is globalized. This provides the State of Israel with a tremendous opportunity. Not only do we produce more knowledge-based products per capita at the highest level in the world, we can do more. Even in absolute terms, our technological product is large, even very large. For example, in the cyber field, we create approximately 50 times more than our relative size. That means that the State of Israel has the same weight as a country with a population of 400 million in terms of these products, and that provides us with an opportunity, alongside the development of the global economy, to reach many more markets that would have been very hard to reach if it were not for these two trends, globalization and technology, especially the internet.

I would like to demonstrate how hard it would have been. We are a small country. If there were no global economy and we had to penetrate each country separately – the United States for example. Let's say the United States wasn't the United States, but rather was comprised of 50 nation-states, each one with its own law, its own taxes, its own rules, and Israeli companies would have to open up an office in each of these 50 countries. You understand that we would not be able to compete. But the fact that the economy is opening and becoming global, the fact that there in an internet economy that is bursting forward, gives countries like ours and Israeli companies a tremendous opportunity – and we are seizing it.

I do not know how many of you were at the cyber conference we held yesterday. It was pioneering. There were 1,500 people there, including the most advanced companies in the world in this field – and they did not come here because of our beautiful eyes, nor did they come because of any kind of political consideration. They came, they told me, for three reasons – those same three reasons I am given with I meet with the leaders of China or of Mexico or of other countries, as I did recently.

They want three things: Israeli technology, Israeli technology and Israeli technology. They know what they want. Our advantage in this field, I believe, results from unique reasons that created a crystal of tremendous technological capabilities here, and we must continue to nurture it.

The reasons are, first of all, our military needs which created special capabilities in the IDF and the security branches; our excellent universities – I am at one of them – our research institutions; our special culture, which is connected to the fact that we always ask questions. Amos, you mentioned questions, but this tradition is a Talmudic tradition that never defined knowledge, never put an exclamation point on anything, but rather repeated investigated in different centers of knowledge. This tradition burst forth after the French Revolution and the fall of the ghetto walls into new fields, fields like science, mathematics, physics and chemistry. The results of this are clear.

Culture is the third element, and the fourth is of course our small size. Everyone knows everyone else; everyone competes with everyone else; and everyone collaborates with everyone else. This creates a special component.
And perhaps the main reason is that we have no choice: the State of Israel is the result of initiative and recognition of the fact that we must act with special innovation in order to survive, in order to guarantee our lives.
This combination created a special crystal here that cannot be found almost anywhere else in the world. It can certainly be found in the United States, but I am not certain that it can be found at the same strength and with the same synergistic capabilities, the same creativity in many other places – the world recognizes that.  This also affords us the opportunity to develop the many fields of the new economy – the fields of life sciences and information industries and all those between them, and many others. It affords us the opportunity in great measure to change the face of the State of Israel in the world and to create new alliances.

I would like to emphasize that all countries need alliances. Even the biggest powers need alliances, and certainly a small country like ours needs alliances in order to increase its strength. These alliances are not only political ones and diplomatic relations, but also our relations with the new powers that are rising and making an appearance on the world stage.
Three days ago in Davos, I spoke with Secretary of State Kerry, representing the leading global power, the United States, and I spoke with the Chinese Secretary of State and the number three guy at Google. These are powers and Israel must weave a fabric of global interests and partnerships with all of them.

Let me touch on China, for example. China is very interested in Israeli technology, to say the least. We think we can gain a small share of a huge market, which for a country with eight million citizens can help us a great deal. This is an opportunity which exists and there are other opportunities with China. China must still move a significant portion of its goods for the next 20 years to central markets in the West, including Europe. These goods still must move there physically. 95%-98% of them come by sea, a significant portion of that through the Suez Canal, and we are building a valve in the form of a train that would connect the Red Sea with the Mediterranean, between Eilat, Aqaba to Ashdod and Tel Aviv. This is a land connection between Asia and Europe and between Europe and Asia, and then there will be a passenger train that will allow you to travel from here, from Tel Aviv to Eilat in two hours.

This has tremendous consequences for the vision we have wanted to realize since Ben Gurion's time – to allow for the State of Israel to be connected from the Negev to the Galilee. I ask myself what the problem is. This country is such a small country, but we were stuck in a narrow corridor between Hadera and Gadera with a little bulge where Jerusalem is. We are developing the country alongside the development of the global economy and the opening up of the vast economic world that is out there.

We are currently developing the country. You drive on the roads and see this. This is part of a clear vision. It is a simple vision that states: a highway from Kiryat Shmona to Eilate and a train from Kiryat Shmona to Eilat, as well as an information highway with fast fibers from Kiryat Shmona, where we began, to Eilat. This erases the periphery. The concept of periphery is unacceptable to me, neither geographically nor in social terms. This is developing the country; it is an engine for growth; it is a tremendous social engine; and Digital Israel will be a social, economic and global engine, and everyone understands that.

The largest companies in the world like Cisco are partners to this effort, and as John Chambers, the head of Cisco said in Israel, Israel is currently advancing more than any other country in realizing this vision. This is a test we still face, but we are in a good situation and position from which we can take full advantage of our relative advantages – more than ever before. This finds expression not only in seizing these opportunities, but also in responding to problems.

If there are two huge engines driving the global economy today, the first is the rise of Asia, first and foremost China; and the second is the rise of the internet. We are in both these fields. The internet cannot grow without information security. It cannot grow without an ability to protect privacy. It cannot grow without protecting the bank accounts of every user, of every citizen. It cannot grow without also protecting against the possibility that these networks, which are ever expanding, can be attacked – whether they be government networks, or a country's electrical system, its communication system, its traffic system, etc.

That is why we are investing a tremendous amount of effort in developing these capabilities as a separate effort. I focus on it because right now it is changing the face of the Negev. What is happening right now is that we are investing in Beer Sheva and moving our leading units there, including the National Cyber Headquarters that we established, and this in turn, is bringing in the largest companies. You heard that yesterday IBM decided to develop a large center in Beer Sheva, in the heart of the university campus where we established our center, which is a combination of our biotechnical and academic capabilities and the business world.

I also made the decision to ease the exportation of Israeli cyber companies. There are now several hundred and their numbers continue to increase – half of them didn't even exist four years ago. We are in a position where we can transform Israel into a world power in technology. It is an ongoing effort and it obligates us to make changes in our education system which has still not closed the gaps as needed. However, there are certain systems which help in this area such as the IDF.

Let me say a few words about the IDF, especially about the members of the regular army. Everything we are describing: these tremendous opportunities alongside dealing with the dangers lurking at our doorstep and the desire on the one had to prevent the dangers of a nuclear Iran and terror, while on the other hand ensuring a stable agreement with the Palestinians – our entire existence depends on the IDF. It also depends on many other factors, but first and foremost it depends on the IDF, and the core that leads the IDF is the regular army and the regular army has recently suffered irresponsible attacks.

Let me tell you: these people – you could say about them that "a guardian of Israel will neither rest nor sleep" – these people guard Israel day and night. This is what separates our situation from that of the Jewish people before the establishment of the State of Israel. The IDF is the force that safeguards our existence. I think this appreciation should be voiced, especially in light of the criticism and contempt I have seen lately, and I do so with pleasure because I, and Amos can attest to this as he described his conversations with me, I can tell you that in the meetings that I hold and in my visits to IDF soldiers, I know how much this country and its citizens owe the Israel Defense Forces and the regular army of the State of Israel.

In order to sustain a regular army, in order to achieve the goals of repelling the threats we face and advancing the secure peace at the same time – this obligates a very strong army. I do not see a situation in which we will not need a very strong army and an additional security system – including the Mossad and the Shin Bet – in the coming years. We will also need special cyber capabilities. All this necessitates a great deal of money. We will not get this money through contributions and handouts. It will come from the development of that same economic capability in a global economy and the economy of tomorrow. We are developing it with the goal of reaching our main target: the Jewish state.

When I say Jewish state, I also mean that we must prevent the penetration of tens of thousands of infiltrators, and we have done so. We simply build a fence. A Jewish state, a democratic state, an advanced state: this is my vision and I believe we can realize it.

Thank you very much.