Palestinian leader Yasser Arafat says he remains committed to peace with Israel, but that the Jewish state must withdraw from the entire West Bank, Gaza Strip and east Jerusalem.
Mr Arafat's speech comes amid US efforts to re-establish a peace process and bring a halt to violence on the ground.
In a speech broadcast on radio and television, Mr Arafat said peace with Israel remained his strategic choice and spelled out the price.
"We reiterate our readiness for a just peace on the basis of a full withdrawal from the Palestinian and Arab territories to the June 4, 1967 borders," he said. "We also reiterate our commitment to peace ... between the two states, Palestine and Israel."
Israeli Foreign Minister Shimon Peres told the UN General Assembly: "there is support for a Palestinian independence, support for a Palestinian state."
Prime Minister Ariel Sharon has also said he accepts the concept of a limited Palestinian state but has opposed any dismantling of settlements.
But many Israelis have lost faith in peacemaking after the Palestinians rejected an offer last year for what Israeli negotiators said was a state in more than 90 percent of the West Bank, all of Gaza and parts of disputed east Jerusalem.
Mr Arafat's insistence on a "right of return" to Israel for some 4 million refugees and descendants - and the outbreak of fighting 14 months ago - convinced many Israelis that the Palestinians' real goal was to take over Israel itself.
In his address, Mr Arafat refrained from demanding a "return" of the refugees, saying only that there needed to "a solution" which could leave the door open to their resettlement in a Palestinian state or monetary compensation.
PA