'This Week' Transcript: Tax Deal

AMANPOUR: So if you don't agree with basically rejecting the United States' request for this freeze -- let me ask you, Prime Minister -- how can your side now, after all that the United States has put in, after all the goodwill the United States has given, particularly to you and your efforts in your -- in your institution-building -- how can you now say, no, sorry, no freeze, no temporary freeze, we're not going to have direct talks?

FAYYAD: It's a question of credibility, credibility of the political process achieved (inaudible) is supposed to be an end to the Israeli occupation that began in 1967. So when you experience the kind of difficulties that this particular process has experienced, in -- in -- in the form of failure to get Israel to comply with something as basic as to stop committing further violations to international law in the form of continued settlement expansion, the question, how can one rely on this process to deliver on the end of occupation? It's a question of political credibility.

AMANPOUR: OK. But -- but the point is, actually -- I know that there was a great deal of discomfort within the Palestinian leadership when the administration insisted on this settlement freeze for talks. It sort of President Abbas in a bit of a strange position. Could he not decide to go ahead, since there are all these things on offer on the core, core issues now?

FAYYAD: We definitely would like to know what is on offer on core issues, and that -- that really is what this process should be about and what we would really would like to know as early as possible is what it is that Mr. Netanyahu has in mind when he says the Palestinian state.

AMANPOUR: Well, let me ask you, then. You heard the speech on Friday night here in Washington. Secretary Clinton laid out the core issues. And of the big ones on Jerusalem, she talked about, you know, how each side has to really be able to negotiate on what their aspirations are for Jerusalem and also to keep it a place for all the world's faiths and populations. Your own defense minister, Ehud Barak, went even further, talking about splitting Jerusalem. Is that something that--

LIVNI: And then the prime minister said today that what Ehud Barak said a few days ago is not a government policy. But I think that the good news is that what Secretary Clinton said, that they are going to discuss with Israel and the Palestinians their basic position on the core issues.

And these are the difficult decisions that need to be taken, in terms of Israel's security for the future, border, Jerusalem is just one of the core issues that are on the table. So -- so basically the choice in the Middle East is sometimes between bad options. So in choosing between building more buildings or making peace, I prefer to make peace. But it is also a matter of trust, and the parties need to regain the trust.

AMANPOUR: And -- and on the issue of refugees -- this has been a big issue, obviously, for the Palestinians. On the refugees, Mrs. Clinton said, again, that it's a difficult and an emotional issue, it requires a just and permanent solution.

Is it time for the Palestinians to recognize what basically everybody knows, and that is that not all the '48 refugees are going to come back, and that there must be a just compensation and a just solution to all of this? Can the Palestinians do this?

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