JERUSALEM (Reuters/AFP) - Israeli Prime Minister Benjamin Netanyahu said on Thursday that Jerusalem would remain the capital of Israel and would never be divided. Palestinians seeking to establish their own state alongside Israel in a future peace agreement want their capital to be in Jerusalem. Netanyahu met US President Barack Obama this week for their first talks since both men took office earlier this year. Speaking at a Jerusalem Day ceremony marking Israels capture of the Arab Eastern half of the city in the 1967 ME War, Netanyahu said it was important for me to return and say here what I said in the United States. A united Jerusalem is the capital of Israel. Jerusalem was and will always be ours. It shall never be divided and disunited again, Netanyahu said. Netanyahu said that only Israeli sovereignty over a united Jerusalem would ensure free religious practice and access to holy sites by the three major faiths. Palestinian negotiator Saeb Erekat said Netanyahus position on Jerusalem was a setback to the goal of a two-state solution, which is strongly supported by the Obama administration. Netanyahu, by saying that, hes saying the state of conflict will be eternal, Erekat said. We are faced with real non-negotiators, he said. The international community does not recognise Jerusalem as Israels capital and the future of the city is a key stumbling block in negotiations with the Palestinians, who want east Jerusalem to be the capital of their future state. Thousands of people, many waving Israeli flags, staged a parade in Jerusalem to celebrate the citys reunification, while about 200 Palestinians and Israeli left-wing activists took part in a protest sit-in at the old Citys Damascus gate, chanting No to occupation, yes to peace. The ties of the Jewish people and Jerusalem goes back thousands of year ... It will remain united under our sovereignty, Netanyahu said. The anniversary is marked each year in accordance with the Jewish lunar calendar. Israeli MPs from the ruling right-wing coalition on Thursday submitted a bill aimed at blocking any concessions to Palestinians on the status of Jerusalem. The projected legislation would require any change in the citys boundaries to have the backing of a majority of 80 of the 120 parliamentary deputies, as compared with 61 at present. The MPs said the aim is to guarantee the unity of the city. The previous government had indicated the Jewish state might be willing to give up sovereignty on some Arab neighbourhoods of east Jerusalem. But the Netanyahus government, which was sworn in on March 31, has ruled this out.