President Obama played down the impact of his sometimes stormy relationship with the Israeli prime minister. (Jason Reed/Reuters)

President Obama made an impassioned case for a Palestinian state in an interview with an Israeli television network on Tuesday, arguing that the current standoff imposed a steep moral cost that was eating away at Israel's core democratic values.

Obama acknowledged that the near term prospects for peace with the Palestinians were not good under the leadership of Israeli Prime Minister Benjamin Netanyahu, with whom Obama has had a difficult relationship. "I think Prime Minister Netanyahu is somebody who's predisposed to think of security first; to think perhaps that peace is naive; to see the worst possibilities as opposed to the best possibilities in Arab partners or Palestinian partners," Obama said in the interview with Israel's Channel 2.

But Obama insisted that the absence of progress a long-term peace deal, something he has championed since the early days of his presidency, was "very dangerous for Israel."

"Israel is going to have a choice about the nature of the Israeli state and its character," Obama said. The president also hinted that Netanyahu's resistance would make it harder to defend Israel at the United Nations from resolutions calling for the recognition of a Palestinian state.

[With talks on ice, Palestinians’ Mahmoud Abbas declares diplomatic war on Israel]

Obama, often speaking directly to the Israeli people, defended the U.S.-led negotiations to secure a deal that would prevent Iran from securing a nuclear weapon, saying that a diplomatic agreement backed up by a rigorous inspection program was the most effective way to cut off Iran's pathways to a bomb. He brushed aside suggestions that lifting sanctions would provide Tehran with billions of dollars to bolster its proxies throughout the Middle East, saying that the Iranian government was under intense pressure to improve its economy and that the financial windfall wouldn't necessarily lead to a more aggressive and threatening Iran.

"So the question then becomes are they going to suddenly be able to finance ten times the number of Hezbollah fighters?" Obama asked. "Probably not."

The majority of the president's remarks, however, were focused on the stagnant peace process, which Obama said was a threat to the country's democracy. At times, the president spoke in unusually personal terms, encouraging Israelis to show greater empathy toward the Palestinian people. "Let's say I'm a Palestinian student or I'm a Palestinian and I don't buy the rhetoric of Hamas, and I know there are good people inside of Israel. ... Every day I'm traveling through checkpoints that may take me hours, and if I have a business trip or a student exchange trip, I may not be able to go because I don't have a state, " Obama said. "I don't see opportunities for me in the future. The question is what do we say to them? What are their prospects?"

[Obama takes step to mend relations with speech at Adas Israel synagogue]

At other times Obama insisted that Israel's fears — many of which he acknowledged were justified — were blinding its people and leaders to the dangers of the status quo. Obama compared Israel's current situation to the fear that he said had forced the U.S. to make "very damaging strategic mistakes" after the Sept. 11 terror attacks. "For example, around issues like renditions and torture, we lost our values and its taken a long time to rebuild those," Obama said. "I would respectfully suggest that Israel has to do that same self-reflection, because if it doesn't, there are things that you can lose that don't just involve rockets."

The president downplayed personal tensions with the Israeli leader, saying they had no impact on the relationship between the two allies. "When I'm with Bibi, we have good conversations," Obama said, using the nickname of his Israeli counterpart. "They're tough, they're forceful, we disagree. But I enjoy jousting with him, I do."