On Tuesday, the Israeli Foreign Minister was in Luxembourg for an EU meeting; the question of strengthening relations between the EU and Israeli has been thrown into doubt lately due to the Gaza conflict in December/January and the election of a right-wing, more hardline, Israeli government.
Now the Israeli government has accepted in principle the two state solution (probably due to Obama's insistence on it, but the desire to upgrade relations with the EU would also have been a factor). It remains to be seen whether or not the Israeli government can remain united behind the PM's peace plans, and he may have to rely on the main opposition's qualified support in the future to keep on track. In Luxembourg, the Israeli Foreign Minister, Avigdor Liberman, who is even more hardline than PM Netanyahu, has been pushing the line that this development is a positive step on the path to peace. Did Israeli get the upgrade in relations? No.
Why? Because the support given to the two state solution comes with conditions attached; though the proposed negotiations are to be "without preconditions" (a phrase that seems to be spreading since Obama made it fashionable), Netanyahu's vision of a Palestinian state is one without any part of Jerusalem, and without an army of its own. So while Netanyahu's speech has been praised as a "step forward" by the EU's head of the CFSP, Javier Solana, and the External Relations Commissioner, Benita Ferrero-Waldner, have very much stressed that it is only a first step.
The Swedish Foreign Minister has even commmented that it's debatable whether or not Netanyahu's vision of the Palestinian state can really be classified as a state.
In many respects, he's right. The Palestinian state demand is a demand for equality, and it would be hard to present the implementation of the Netanyahu vision as a state equal in status to the Israeli state if it is forbidden to have an army. It also wouldn't help Israel's position much in the long term - the whole point of the peace process is to produce an outcome where both sides are moderately satisfied and so the support for violence is vastly reduced. A demilitarized Palestinian state, however, would be more likely to look to other Arab nations to guarantee its security, and it would be more likely to be a revisionist state - constantly seeking to reverse the conditions imposed on it. This could lead to an unstable international situation (though it could be more stable than the one at the moment) where Israel is constantly tempted to intervene to uphold the settlement, and other Arab states, if Palestine-aligned, could be drawn in.
Th EU is right to keep up pressure on Israel to commit fully to the two state solution.
Of course, the speech could have just been an opening bid to increase the bargaining chips of Israeli, or a attempt by Netanyahu to slowly move his party/coalition and cabinet towards the concessions Israeli will have to make if there's to be a viable two state solution. I think that would be a very optimistic view, however.