Israeli premier-designate Benjamin Netanyahu speaks during a financial conference in Jerusalem on March 25, 2009. (Emil Salman/AFP/Getty Images)

JERUSALEM—Israeli Prime Minister-designate Benjamin Netanyahu said on Wednesday his government would negotiate peace with the Palestinians, but made no mention of their U.S.-backed quest for statehood.

In a speech a day after enlisting the centre-left Labour Party into a broad-based administration that could help him avoid friction with Washington over peacemaking, Netanyahu focused on his plans to shore up the Palestinian economy.

He told legislators from his right-wing Likud party, in separate remarks, that he planned to present his new government for parliamentary approval next week, a Netanyahu spokeswoman said.

The vote, she said, would likely be held on Monday or Tuesday. Under a mandate from Israel's president, Netanyahu has until April 3 to form a government.

"If we have a strong Palestinian economy, that's a strong foundation for peace," Netanyahu said in a speech to a business forum, pledging to remove some "bureaucratic handicaps" stunting growth.

The Palestinian Authority and the United States have long urged Israel to ease restrictions on the movement of Palestinian people and goods in the occupied West Bank, where the Israeli military maintains a network of checkpoints.

"I think that the Palestinians should understand that they have in our government a partner for peace, for security and for rapid economic development of the Palestinian economy," he said.

"This means that I will negotiate with the Palestinian Authority for peace," Netanyahu added, describing an "economic track" as a complement to political talks in an apparent bid to ease any international concerns he might not seek a peace deal.

Asked about Netanyahu's comments, Nabil Abu Rdainah, a spokesman for Palestinian President Mahmoud Abbas, said the incoming Israeli government "must be committed in an explicit manner, without ambiguity, to the two-state solution".

Two-State Solution

Netanyahu has shied away from declaring support for the establishment of a Palestinian state in the West Bank and Gaza Strip, alongside Israel, an objective U.S. President Barack Obama reaffirmed on Tuesday at a news conference in Washington.

But under the coalition deal with Labour, led by Defence Minister Ehud Barak, Likud agreed to respect all of Israel's international agreements — a formula that includes accords envisaging Palestinian statehood.

Indirect acceptance of that goal and formation of a broad government that includes Labour, the moving force behind interim peace deals with the Palestinians in the 1990s, might keep Netanyahu off a possible collision course with Obama.

Netanyahu is widely expected to finalise his government in the next few days and ask parliament to ratify it next week.

On Monday, Netanyahu sealed an agreement with the Orthodox Jewish Shas party, a perennial member of coalitions of right and left down the years. He had already signed up the Yisrael Beitenu party led by ultranationalist Avigdor Lieberman.

But while enlisting those partners, Netanyahu made clear he preferred a broad-based coalition.

A sharp turn to the right within Israel's government could raise international concern already heightened by Netanyahu's promise to appoint Lieberman as foreign minister.

With centre-left Labour in his corner, and after the agreement on Wednesday by the nationalist Jewish Home party to join the coalition, Netanyahu would have a ruling majority of 69 seats in the 120-member parliament.

That margin could change if any of Labour's 13 legislators opposed to the partnership with Likud withhold their support of the government.

There appeared to be little chance the ruling centrist Kadima party, which won 28 seats to Likud's 27 in the Feb. 10 election that resulted in a strong rightist bloc in parliament, would agree at the last-minute to join up.