Speaking at the World Economic Forum in Davos, Switzerland, Sunday, Netanyahu said he did not plan "to remove a single settlement" or force a single Jew to move as a result of the peace process.
Jewish settlements encroaching on what has been regarded as traditionally Palestinian lands are a major source of tension in the ongoing peace negotiations being brokered by U.S. Secretary of State John Kerry.
Netanyahu's office later clarified the statement, saying his administration would not force Jews to leave their homes if the land is returned to the Palestinians, meaning they would have the right to live under Palestinian rule, the Los Angeles Times reported Monday.
That would represent a major policy shift for the government -- one to which Palestinians responded angrily, arguing there is no point in returning land if Jewish settlers would still be living on it.
The statement was met with equally harsh rebukes from hawks in Netanyahu's own Likud party.
Economy Minister Naftali Bennett accused Netanyahu of an "irrational loss of values" and said Jews did not yearn for Israel for 2,000 years in order to "live under Palestinian rule."
For his part, Kerry, also speaking at Davos, urged the two sides to resolve their differences, saying demographic shifts and world events mean "there's no guarantee" a better opportunity to make peace will come along again anytime soon.
"Some assert this may be the last shot. ... I don't want to find out the hard way," Kerry said.