RAMALLAH, West Bank, (AFP/Reuters) - Palestinian President Mahmud Abbas on Wednesday resisted US pressure for a resumption of peace talks with Israel, repeating his demand for a complete halt to Israeli West Bank settlement building before negotiations in an address to tens of thousands of Palestinians gathered to honour late Yasser Arafat. The fifth anniversary of the revered leaders death finds Palestinians more divided than ever and his successor, Abbas, pondering resignation because of stalled US-led peace efforts that have failed to create a Palestinian state. Abbas insisted the Palestinians remain committed to a peaceful solution to the conflict, but he accused Israel of hindering peace efforts by expanding Jewish settlements in the occupied West Bank including east Jerusalem. We see Israel confiscating land, building settlements and Judaising Jerusalem with unprecedented speed ... and then they ask that we return to negotiations, Abbas told the huge crowd. The return to negotiations depends on Israel adhering to the terms of reference of peace and that means halting all settlements, including natural growth and Jerusalem. It is our right to demand the removal of all settlements from our land because they are illegal, he added. Abbas said Israel was disfiguring the two-state solution. They are putting obstacles in its way. They are trying to remove this concept. What do they want? he said. Abbas extended his hand for reconciliation with Hamas, urging it to sign an Egyptian proposal to end the division. Instead of trying to eliminate each other, let us unite to be face the occupation together, he said. But Hamas spokesman Sami Abu Zuhri said Abbas was only manoeuvring. The crowd, waving Palestinian flags and yellow banners of Abbas Fatah party, crammed into the government compound to honour Arafat, who catapulted the Palestinian cause on to the world stage and led them through nearly four decades of armed struggle and sputtering peace talks. A senior Palestinian security official estimated that tens of thousands of people had gathered in and around the Muqataa presidential compound, the headquarters of the Palestinian Authority and the site of Arafats mausoleum. No rallies were held in the Gaza Strip, where Hamas drove out Fatah loyalists in 2007. Dozens of students at the Fatah-linked Al-Azhar University were arrested for wearing Arafats signature black-and-white chequered keffiyeh and carrying pictures of him, family members said. Meanwhile, an Israeli government spokesman said a draft law stipulating that any Middle East peace treaty must mention compensation for Jews forced to leave Arab states has passed a preliminary reading in the Israeli parliament. The draft bill, presented by a member of the ultra-orthodox Shas party, a member of the government coalition, passed the preliminary vote 49 to 5 last week, said spokesman Giora Pordes. The draft, which the Maariv daily called a curious and provocative bill, still has to pass three more votes before it becomes law. It calls for the issue of Jewish refugees from Arab states to be raised whenever the question of Palestinian refugees comes up in Middle East negotiations.