Clinton was in Israel to attend celebrations marking the 90th birthday of Israeli President Shimon Peres.
"You have to cobble together some kind of theory of a two-state solution, and the longer you let this go, just because of sheer demographics, the tougher it's going to get. I don't see any alternative to a Palestinian state," the former U.S. President said in a speech before the Peres Academic Center in Rehovot Monday night.
Clinton said he would donate the $500,000 payment received for his lecture to the Center to fund scholarships for students studying there, The Jerusalem Post reported.
The event marked the start of three days of celebrations to honor Peres.
Earlier in the day, Peres met with U.S. singer-actress Barbra Streisand at his Jerusalem residence along with 21 children who suffer from life-threatening illnesses in an event organized by the Make-a-Wish foundation.
Celebrations were to peak Tuesday night with world dignitaries and Hollywood stars, Nobel Prize winners, business moguls from Israel and abroad and Israeli government officials gathering at Jerusalem's International Convention Center.
At Peres' request, Streisand will sing the Jewish prayer "Avinu Malkeinu" ("Our Father, Our King) in Hebrew, Ynetnews.com said.