Ramallah  - Palestinian Prime Minister Salam Fayyad said Wednesday that the Palestinians want no "Mickey Mouse" state in a small part of the West Bank.

The new Israeli government of Benjamin Netanyahu should "explain exactly what kind of state it is talking about" when the hardline premier said in June he was willing to accept a demilitarized Palestinian state, Fayyad told a news conference in Ramallah.

Fayyad said Netanyahu had talked about a state without the Jordan Valley, which makes 27 per cent of the West Bank territory, and without areas classified as C in the Oslo agreement, which are the sparsely inhabited areas of the West Bank.

The Palestinian prime minister said his government's programme of building state institutions within two years requires in the end a decision of the UN Security Council endorsing an independent Palestinian state.

"Our right to statehood has to be enshrined in a Security Council resolution," Fayyad told foreign journalists. He said the Oslo interim peace agreement, signed 16 years ago, had failed to do that.

Fayyad was pessimistic about the peace process, saying "there is no end in sight to the conflict."

"We haven't lost hope" in US policy, he nonetheless added. "US leadership is essential for the success of the peace process."

In his last visit to the region, special US peace envoy George Mitchell did not publicly mention a former American prerequisite for resumption of negotiations and that was Israeli halt to settlement activities.

Palestinians viewed this position and earlier statements by US President Barack Obama in which he changed his rhetoric from freezing settlements to restraining them as a retreat in the US position Obama has held since he assumed office earlier this year.

Fayyad said that failure of the peace process so far had rubbed off on the Palestinian Authority, contributing to its weakness. The West Bank-based Palestinian Authority of President Mahmoud Abbas seems to have lost support as people have lost faith in its programme of a peace settlement through negotiations only.

He said that while Israel had lifted some of the military checkpoints around the West Bank, allowing more freedom of movement for local residents, this however was "not enough." Economic growth would not be possible without Israel lifting restrictions.  dpa