Israel's foreign minister on Sunday called for redrawing the country's borders to exclude some Arab citizens, raising the explosive proposal just as new peace talks with the Palestinians struggle to get underway.

Foreign Minister Avigdor Lieberman also rejected the foundation on which years of negotiation with the Palestinians have been based: Trading captured land for peace.

The principle guiding peace talks "must not be land for peace, but an exchange of land and people," Lieberman told reporters before the weekly Cabinet meeting.

Lieberman's Yisrael Beitenu, or "Israel is our Home," posted strong gains during elections last year with a message that questioned the loyalty of Israel's Arab citizens.

His solution is to redraw the border and transfer them to Palestinian rule, while also incorporating residents of Jewish settlements in the West Bank into Israel's borders. No one would be uprooted from their homes.

In a radio interview, Lieberman, who himself lives in a West Bank settlement, defended his proposal, saying Israeli Arab leaders do not recognize Israel's right to exist.

Israeli Arabs frequently identify with their Palestinian brethren in the neighboring West Bank and Gaza Strip.

Lieberman has consistently questioned the loyalty of Israeli Arabs and unsuccessfully tried to enact a law that would strip citizenship from people who refused to sign a loyalty oath. The proposal was rejected by a ministerial committee.

The loyalty issue has come up again because of the refusal of Palestinian negotiators and the Arab League to endorse Israel's demand that it be recognized as the homeland of the Jewish people.

Opponents say Israel's demand would compromise the rights of Israeli Arabs, who make up about 20 percent of Israel's 7.6 million people, and Palestinian refugees who lost homes in the war over Israel's establishment in 1948.

Husam Zomlot, a Palestinian spokesman, said Lieberman's comments were unhelpful to peace efforts.

Lieberman "holds the second-most important position in the Israeli government. Therefore we are extremely discouraged by his remarks," he said.

"He is looking for ways to complicate the Middle East conflict with confrontations against the Arab community," said Jafar Farah, Director of the Moussawa advocacy center for the Arab-Palestinian minority in Israel.

If Israeli Jews can't coexist with that minority, then how can they live in peace with the region's 400 million Arabs, he added.

Asked if Lieberman's position reflected the government's, official spokesman Mark Regev noted that the different parties in Netanyahu's coalition "have different political outlooks."

Lieberman has made such declarations before, and the prime minister, not the foreign minister, sets Israeli foreign policy. But the comments threatened to further cloud the negotiating climate at a sensitive time.

Palestinians envision the West Bank as the hub of a future state and object to any Jewish construction there. Netanyahu says a 10-month slowdown on building won't be extended beyond its 26 September expiry.

There is intense pressure from the US on Israel to extend the slowdown, and at the same time, on the Palestinians not to abandon the talks. Both sides say they expect to reach a compromise.