JERUSALEM -- French President Nicolas Sarkozy called on Monday for a halt to Jewish settlement activity in the occupied West Bank while proclaiming his staunch support of Israel in an address to its parliament.
"There can be no peace without stopping settlement," Sarkozy told MPs and invited guests.
"There is a proposal backed by many members of your Knesset for the adoption of a law that would encourage settlers to leave the West Bank in exchange for compensation and relocation in Israel," he said.
Israeli authorities have announced the construction of hundreds of new homes for Jewish settlers in the West Bank in recent months, infuriating the Palestinians and drawing criticism from the international community which regards all settlements on occupied land as illegal.
Sarkozy also called for an easing of travel restrictions in the West Bank, where the army operates hundreds of roadblocks which the World Bank says are a major obstacle to economic growth but which Israel insists are vital to its security.
He said the Palestinians too had to do more in order to achieve peace.
"There can be no peace if Palestinians themselves do not combat terrorism."
Sarkozy stressed that France was strongly committed to Israel's security.
"France will always be by Israel's side when its security, its existence are threatened," he said, adding that France would consider it "unacceptable" for Iran to acquire nuclear weapons.
"France is determined to pursue with its partners a policy ranging from ever-tighter sanctions to an opening should Tehran opt to respect its international obligations."
Sarkozy said a lasting peace required the creation of a viable Palestinian state alongside Israel with both sharing Jerusalem as their capital.
"There can be no peace without recognising Jerusalem as the capital of two states and the guarantee of freedom of access to the holy places for all religions," he said.
Israel occupied Arab east Jerusalem in the 1967 Middle East war and later annexed it in a move never recognized by the international community. It has since insisted that it regards the whole city as its "eternal, indivisible" capital.
Palestinian president Mahmud Abbas welcomed Sarkozy's speech, his spokesman said. "The positions expressed by President Sarkozy reflect the French support for the Palestinian cause in seeking to reach a peaceful settlement in the region," Nabil Abu Rudeina said.
On Tuesday, Sarkozy plans to travel to the West Bank town of Bethlehem for talks with the Palestinian president.
Sarkozy's visit, one of several by world leaders to mark the Jewish state's 60th anniversary, was aimed at underlining the strength of Franco-Israeli relations, in contrast with the tensions that marked ties under former French president Jacques Chirac, perceived in Israel as being pro-Arab.
Sarkozy is the first French president to visit Israel in almost 12 years, and only the second to address the Israeli parliament after Francois Mitterrand in 1982.
On Monday morning, Sarkozy and his wife -- supermodel-turned-singer Carla Bruni-Sarkozy -- toured Jerusalem's Yad Vashem memorial to the six million Jews killed by Germany's Nazi regime.
Later in the day he was scheduled to meet the parents of Corporal Gilad Shalit, an Israeli soldier held by Gaza militants for the past two years who also holds French nationality.