BRUSSELS (AP) — With an impassioned plea to European Union leaders to fundamentally change the way the EU is run, David Cameron kicked of two months of negotiations on many of the cornerstones on which the 28-nation bloc is built, with the survival of Britain as a member state hanging in the balance.

While the other EU leaders sought to be accommodating to several British demands to streamline bureaucracy and increase efficiency, they insisted they would not compromise core values to limit largely unfettered movement in the bloc and discrimination between EU citizens, even it meant losing one of the biggest EU assets.

"We have to be tough when it comes to red lines and fundamental values. We will not give up," said EU President Donald Tusk after what he called a "make or break" evening to see whether a compromise would be possible.

Britain will have a referendum before the end of 2017 to decide whether to stay in the EU. Cameron is seeking wholesale changes to how the EU is managed and wants to ingrain it more with the British view of non-interference and sustained sovereignty rather than the EU's mantra of ever closer union.

And even though Cameron echoed the challenges ahead are huge, he did sound hopeful, saying "there is a lot of goodwill. There is momentum."

"There is a pathway to an agreement," Cameron said. "But the truth is, it will be very hard work." If there is no fundamental reform, Cameron has indicated it could lead to "Brexit," or a potential British exit.

British proposals on welfare and migration are expected to be the toughest to find an agreement on. Particularly grating on member states is a plan for a four-year ban on in-work benefits for migrants, something many feel amounts to discrimination. Cameron has said the issue was not so much people coming to Britain as them getting access to the welfare system too easily under current EU rules.

European Council President Donald Tusk said "some parts of the British proposal seem unacceptable" unless they are changed.

French President Francois Hollande said that "we may have adaptations, we may have adjustments, but we must have the respect of European principles, of European laws"

Notwithstanding those objections, the midnight atmosphere was that a deal could still be possible.

German Chancellor Angela Merkel assured Cameron he would have a friend in Germany in his quest to renegotiate fundamental parts of EU legislation if he colored within the lines of the EU treaty.

"On our side we would like to keep Britain as a member of the EU, but at the same time we do not want to limit the basic freedoms, nondiscrimination, the fundamental principles of the EU," Merkel said.

"Where there is a will, there is a way," Merkel said after hearing Cameron's 40-minute speech to leaders. "Optimism is based on the fact that we all want a compromise."

"I believe there should be possibilities to find solutions if all sides are willing to compromise," Merkel said of the upcoming negotiations with Britain.

Tusk said he would be coming up with a negotiating paper in the runup to a February 18-19 summit. A planned March summit would seem more likely for a final breakthrough.

Britain's industry and services sector stands to lose billions in trade if the country leaves the EU. Europe would also lose if Britain departs, leaving the continent with much less diplomatic and military clout.

Hollande laid out the tough way ahead. "Allow Britain to stay in the EU, maintain the EU principles while at the same time pushing through essential reforms," he said.

Lorne Cook contributed to this story.