WASHINGTON (AFP) - Israel's Benjamin Netanyahu on Tuesday directly urged Palestinian president Mahmud Abbas to recognize Israel as a Jewish state and to "abandon the fantasy" of flooding Israel with refugees.

But his remarks sparked a furious reaction from the Palestinians who denounced his demand and said it had effectively put the final nail in the coffin of the US-led peace talks.

The latest spat threw a harsh spotlight on the yawning divide between the two sides, and the Herculean task faced by US Secretary of State John Kerry who is trying to get them to agree a framework for extending direct peace talks beyond an April 29 deadline.

Addressing delegates at the annual policy conference of AIPAC, Mr Netanyahu said he was prepared to make an "historic peace," but not without a Palestinian acceptance of the Jewish state.

"It's time the Palestinians stopped denying history," he said, returning to a major point of disagreement in peace talks, which have struggled to make headway in the last seven months.

"President Abbas: recognize the Jewish state and in doing so, you would be telling your people.. to abandon the fantasy of flooding Israel with refugees," he said.

Mr Netanyahu insists that only when the Palestinians acknowledge Israel as the Jewish state will the conflict be finally over.

For the Palestinians, the issue is intimately entwined with the fate of their refugees who were forced out of their homes or fled in 1948 when Israel became a state. They see Netanyahu's demand as a way to sidestep a negotiated solution to the refugee question.

Netanyahu also alluded to Israel's demand to retain a military presence along the Jordan Valley, which runs down the eastern flank of the West Bank, in any future deal saying he would not cede security to foreign peacekeepers.

"If we reach an agreement with the Palestinians.... that peace will most certainly come under constant attack" by groups such as Lebanon's Hezbollah, the Islamist Hamas movement which rules Gaza and extremists from Al-Qaeda.

"Experience has shown that foreign peace-keeping forces, keep the peace only when there is peace, but when subjected to repeated attacks, those forces eventually go home... The only force that can be relied on to defend the peace.. (is) the Israeli army," he said.

His words sparked an immediate backlash from Ramallah.

Top Palestinian official Nabil Shaath told AFP that Netanyahu's demand for such recognition, and his insistence on keeping Israeli troops deployed in a future Palestinian state were "totally rejected." Mr Netanyahu's speech was tantamount to "an official announcement of a unilateral end to negotiations," he said.

Israel has repeatedly insisted there will be no peace deal without addressing the issue of recognition and a clause relating to this has been inserted into Kerry's as-yet-unpublished framework proposal.

But the Palestinians have refused to back down, rejecting Mr Kerry's inclusion of the clause in the framework as "unacceptable." Palestinian negotiators arrived in Washington late on Monday ahead for further talks ahead of a visit by president Mahmud Abbas to the White House on March 17.

US and Israeli officials were tightlipped about the substance of Monday's meeting, with White House spokesman Jay Carney refusing to say whether or not Netanyahu had agreed to accept the US framework.

"We continue to work very closely with the Israelis and the Palestinians on a framework for negotiations," he said.

Mr Netanyahu also made a rare reference to the opportunities a peace deal would open up, including "the possibility of establishing formal ties with between Israel and leading countries of the Arab world.

"Peace with the Palestinians would turn our relations with them and with many Arab countries into open and thriving relationships," he said in positive remarks more commonly heard from Israeli President Shimon Peres.

"The combination of Israeli innovation and entrepreneurship could catapult the entire region forward. I believe together we could solve the region's water and energy problems." He also had strong words for the Palestinian-led movement to boycott, divest from and sanction (BDS) Israel over its activities in the occupied territories.

"The BDS movement is not about legitimate criticism, it's about making Israel illegitimate," he said. "That movement will fail." But BDS spokesman Rafeef Ziadah brushed off Netanyahu's words as a "desperate attack," noting that governments were beginning "to take action to hold Israel accountable for its violations of international law."