Israel will seek a peace agreement with the Palestinians, incoming prime minister Benjamin Netanyahu said on Wednesday.

The leader of the Likud party told an economic conference in Jerusalem on Wednesday that peace is an "enduring goal" for his government and for all of Israel.

"I think that the Palestinians should understand that they have in our government a partner for peace, for security and for rapid economic development of the Palestinian economy," he said.

Netanyahu said a growing economy is a "strong foundation for peace" and his government will negotiate with the Palestinian Authority to develop both.

Netanyahu's comments appeared to be aimed at easing concerns that he may try to freeze past peace efforts.

Netanyahu led his Likud party to a strong showing in last month's parliamentary election by campaigning on a message that was harshly critical of the outgoing government's peace efforts. He said the Palestinians were not ready for independence, and that he would limit his efforts to developing their economy while continuing Israel's military occupation of the West Bank.

Palestinian negotiator Saeb Erekat said he welcomed Netanyahu's most recent comments, but added the new government must commit to establishing a Palestinian state.

"Any Israeli government that accepts the two-state solution, negotiates with us on all core issues without exception, and agrees to stop settlement activity … will be a partner," he said. "It's time for deeds from both sides as far as their commitments are concerned, not words."

Wednesday's statements followed a vote on Tuesday by the centrist Labour party to join Netanyahu's emerging coalition.

Netanyahu had reached an agreement with Labour party leader Ehud Barak that required the government to draft a comprehensive plan for Mideast peace, resume peace talks and commit itself to existing accords.

Netanyahu had tried unsuccessfully to draw the centrist Kadima party of outgoing Prime Minister Ehud Olmert into his government. But Kadima Leader Tzipi Livni appeared cool to the idea, even after the pact with Labour and Netanyahu's pledge to pursue Palestinian peace talks.

Livni on Wednesday called Netanyahu's prospective coalition a government "conceived in sin."

But Barak said the party's involvement in the coalition would moderate what would otherwise be a narrow, hardline government.

But Labour's 680-507 decision to support the coalition has revealed some division in the party, with at least 13 legislators opposing the move.

Cabinet minister Yuli Tamir said Wednesday the party has "lost its way" and that she may not vote with the government.

Israeli President Shimon Peres authorized a two-week extension last Friday for Netanyahu to form the country's next government, giving him until April 3.

Netanyahu said he will present his new government to parliament for approval next week.

With centre-left Labour in his corner, Netanyahu would have a ruling majority of 66 seats in the 120-member parliament.

With files from the Associated Press