Thank you for the generous introduction. Thank you all for coming here; it's really my honor and pleasure to be here today with all of you and I should admit that it's really surprising for me to find this place so far from the Middle East and a place that might be justifiably called the capital of the Pacific Ocean and find so many people interested in coming and hearing and asking questions about the Middle East situation. I will try to use these 20 minutes to describe my judgment of the situation in our region and then open the room for questions and answers.

Three major challenges dominate the strategic landscape of the Middle East right now: the Israeli-Arab conflict, mainly the Israeli-Palestinian one; the explosive combination of fundamental Islam with international terrorism; and the proliferation of mass destruction weapons and the means to launch them into the region like nuclear dominos, from the Indian subcontinent, from India to Pakistan, now Iran and later on maybe Iraq. Out of these three major challenges, I will concentrate on the first one - on the Israeli-Arab conflict. I will relate only slightly to the other two, but I just ask you that if anyone is interested in the other ones to please conserve the questions and I will answer them later on.

Israel at its fiftieth anniversary is a place of major achievements. We began at 650,000 people fifty years ago (like a few suburbs here in Los Angeles), attacked by five hostile armies, won [the war], and now we are 6 million Israelis, a democracy, a shelter for Jews from wherever they want to come, be it Ethiopia or the former Soviet Union. Beyond anything else, we are the strongest country for a thousand miles around Jerusalem, stronger in military might, stronger in strategic capabilities, all our neighbors believe that Israel is a nuclear power, stronger in the economy, stronger in the nature of infrastructure, quality of education, and so on. But a strong Israel is only one element. The second one is that we are living in a tough neighborhood. Unlike North America or Western Europe, the Middle East is still, and will continue to be, a neighborhood where no one will have a second opportunity if he cannot defend himself. There will be no mercy for the weak, and we have to bear in mind that years after we have signed the peace agreement with our neighbors the real safety net, the real guarantee, for our future will not be the signature of the Arab leaders, or even the underwriting by UN officials or the Americans, but the strength of Israel, the military might, the strategic capability, the coordination with the only super power, and even the cohesion of the Israeli society.

The second element after a strong Israel and the tough neighborhood is the fact that we are living through a window of opportunity. A window of opportunity that was opened during the demise of the Soviet Union and might be closed when an Arab, somewhat rogue or not, will have nuclear devices and the means to launch them. And these combinations, a superior Israel, tough neighborhood and window of opportunity face us with a dilemma - what to do during this window of opportunity. Should we wait so that somehow heaven or developments will solve the problem for us? Being the chosen people, trust God and just wait idly? Or should we act, help ourselves, or help Him to help us? My answer is clear and different in a way from the answer that our present government gives. My answer is that we should act upon reality, we should explore opportunity in order to reduce future potential splits before the window of opportunity closes. It is my conviction that only a determined effort to achieve peace in the immediate ring of neighbors around Israel will provide personal security for Israelis and overall security for the State of Israel.

In the area between the Mediterranean and the Jordan River, there are 8.5 million people: 6 million Israelis and 2.5 million Palestinians. A Jewish state to the best of my belief and judgment cannot, and should not, try to rule over another people. If we insist on ruling the Palestinians in these areas, we will end up with either a non-democratic or a non-Jewish state, maybe both. It should be clear to us that any kind of attempt to rule the Palestinians, looking into our history, looking into the history of similar conflicts all along the last century, we will end up with an apartheid system, like South Africa at best. So my vision is clear - we have to separate ourselves from the Palestinians, physically separating ourselves with certain security limits, following Robert Frost's, the poet's, suggestion that good fences make good neighbors. We will become good neighbors once we separate ourselves from them. And we have to bear in mind our security limits. I'm wishing peace through the need to achieve security for the State of Israel. We have our principles. First, a united Jerusalem under our sovereignty, the capital city of Israel forever - period. Secondly, no return under any circumstances to the 1967 borders. Thirdly, no modern armed forces within the area under the control of the Palestinians. No air force, no armored divisions, or artillery or surface-to-air missiles. And fourth, most of the settlers, not necessarily every isolated settlement, but most of the settlers, should be brought into a few big blocks of settlements under our authority. I am fully confident that within these limits and a determined effort we can, and have to, achieve a peace with the Palestinians.

It is only through peace with the Palestinians and putting back the peace process on track that we can change the direction of what happens with our economy and renew the growth. This is the only way by which we will be able, and we intend, to set a new order of priority for the State of Israel. A government should focus on infrastructure, on research and development, and beyond anything else on education. There is not a single natural resource in the State of Israel - no oil, no gas, no diamonds, no coal, nothing whatsoever, not even hydroelectric power. Nothing. Milk and honey, but in small amounts. The only natural resource we have is the brain power of young Israel, and we have to exploit this natural resource to the utmost - from the early age of three and four to start teaching them at this age. Jews are used to it all along history. Beginning at three and four through a long schooling day up to free entrance into the University for every young Israeli - this is the real future of Israel. We have the potential of entering the 21st century at the cutting edge of leading societies of mankind - in science, in technology, in education, in infrastructure.

It depends only upon us, but it won't work as long as we are stuck the way we are stuck now with the peace process. We paid a very heavy price. Let me tell you. I'm fully acquainted with the slightest details of the discussions about the second further deployment that is now one between us and the Palestinians with the mediation of Dennis Ross. Let me tell you that every aspect of it, the percentage of 13 percent, the future of the third further deployment, the Palestinian covenant, the security arrangements - every single item could be concluded on better terms for Israel 9 months or a year ago without inflicting damage onto the security of Israel and many aspects of our strategic position during this time. What happened in the last two years? For the last two consecutive years Israeli GNP per capita dropped a negative gross after a decade of Far Eastern tiger-type of figure. In the previous four years we added 30% to the GDP of Israel. In four years we reduced by half the inflation. In four years we doubled the foreign investment into the country. In four years we doubled the expenditure for education in the country. And now in two years we are in a reduction and slow-down of the economy, our flow of foreign investment reduced by 60%, tourism by even more, unemployment reached 9.5% of the work force, 203,000 unemployed out of a population of 6 million, and this is not the whole story.

During these two years of dragging our feet we isolated Israel in the world. We will face the price if in the General Assembly of the UN in the next few weeks we have only the United States, Micronesia, and the Marshall Islands backing us in the world arena. Let me tell you frankly. Arafat is not the ideal partner, but he's the one who is there. He would not join the ADL organization or B'nai Brith; he represents the Palestinian interest. We have to represent ours. This is the nature of negotiations. A person cannot choose his parents and a nation cannot choose its neighbors. They are there, period. We have to settle down our problems with them bearing in mind the real alternatives, not our wishful thinking. And we have to do it immediately, since we are warned by our leaders of intelligence and defense agencies, recently by the Minister of Defense, that beyond May 1999, the deadline for the end of the Oslo agreement, the Palestinians might declare unilaterally an independent state. We will support the government in rejecting it. Certain counter steps might be taken and a rapid countdown toward new eruption will begin where we might be backed into a bloodshed. Without any gain for Israel. Once it ends we will find ourselves not just thrown back in the beginning of Oslo or to the beginning of Madrid but maybe a generation backwards. And the problems, they will be the same. We'll have to sit down, try to solve the problem, burying our innocent civilians and citizens and some of the security forces and nothing will be changed. In no way will we be stronger after than we are now at the height of our popularity over any other player in the whole region. This is the dilemma and these are the differences, and let me tell you that beyond anything else the real asset that was lost during the last two years is mutual trust.

Many of you are businessmen, or lawyers, you will negotiate, you'll know that words are the tools of negotiations. If there is no trust, if words do not carry contents, intentions, commitment, responsibility, it's just mumbling or moving there, and with moving there you cannot solve real problems. Unfortunately, the problems have to be solved on the ground with a lot of toil and sweat and, unfortunately, tears and blood. And only on the ground. It could be proven whether a government and leadership is serious and our vision is coming back to serious leadership, moving full engines forwards toward the peace process. Renew the growth of the economy, setting a new clear-cut order or priorities, with education on top of everything else, and unite Israel and the Jewish people in a bond that I believe strengthens all of us.

Thank you.