The US President was interrupted by a heckler on Thursday, while giving a speech in Jerusalem to an audience of Israeli university students, in which he reminded them that the United States is their country's best friend and most important ally.

Obama handled the interruption with ease, saying it was part of the debate he had been talking about, and he received a standing ovation from the crowd before continuing.

Obama went on to deliver an impassioned appeal for Israel to recognise that compromise will be necessary to achieve its lasting security and that it must take steps to reverse an "undertow" of international isolation that is worsened by its failure to make peace with the Palestinians.

"Part of the reason I like talking to young people is because no matter how great the challenges are their idealism their energy, their ambition, always gives me hope," he said, receiving a round of applause.

"I believe that you will shape our future and given the ties between our countries, I believe your future is bound to ours..." he was saying when an increasingly loud and belligerent heckler stopped him in his tracks.

As the audience began to boo the heckler Obama countered, "This is part of the lively debate that we talked about," he said to further applause. "This is good."

During his speech, Obama stressed that Israel must make peace with the Palestinians if it is to ensure its survival and long-term viability as a homeland for the Jewish people.

Israeli occupation of areas that the Palestinians claim for their own state must end, and progress toward creating that Palestinian state will help Israel's relations with the rest of the world, notably in its Arab-dominated neighbourhood, he said.

During his first four years in office, Obama had sided with the Palestinians on the issue.
He and his surrogates have repeatedly demanded that all settlement activity cease.

However, when Israel reluctantly declared a 10-month moratorium on construction, the Palestinians balked at returning to negotiations until shortly before it expired, and talks foundered shortly thereafter.

Earlier on Thursday in the West Bank, standing alongside Palestinian President, Mahmoud Abbas, Obama made similar comments but essentially abandoned his previous support for the Palestinian demand that settlement activity end before talks resume.

Obama's speech comes on the last day of his first visit to Israel since taking office, he is scheduled to visit Jordan tomorrow.