
He said "mutually agreed swaps" would help create "a viable Palestine, and a secure Israel".
An estimated 300,000 Israelis live in settlements built in the West Bank, which lies outside those borders. The settlements are illegal under international law, although Israel disputes this.
In a keynote speech on Thursday on the future of US policy in the Middle East, President Obama said: "The United States believes that negotiations should result in two states, with permanent Palestinian borders with Israel, Jordan, and Egypt, and permanent Israeli borders with Palestine.
"The borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognised borders are established for both states."
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