Netanyahu, a master of deception, is using every gimmick possible to keep knowledge of Israel's injustice towards the Palestinians from the American public. He says that Israel would like to be the first to recognize Palestine. His wish may come true and soon.
"I tend to believe things that a son says to his father in private. To this end, we should go back to 2009, to the words revealed by the father, Benzion Netanyahu, regarding the conduct of his son, Benjamin. With the consent of his son, the prime minister, the father gave an interview to Amit Segal on Channel 2 News, and this is what he said about the Bar-Ilan speech advocating the establishment of a Palestinian state: "He [the prime minister] doesn't support it. He supports it under conditions that they [the Arabs] will never accept. That's what I heard from him, not from myself. He proposed the conditions. They will never accept those conditions, not one of them," said Netanyahu Sr." [One of those conditions was acceptance of a "Jewish" State.] 
The Palestine Liberation Organization recognized the State of Israel as part of the Oslo Accords in 1993. Recognition of a Jewish State is a new demand that did not come up during years of negotiations in the 1990s or in peace treaties reached with Egypt and Jordan.
But by trying to force the Palestinian Authority to recognize the state's "Jewishness", Israel is obliging the Palestinians to recognize a system in which Israel's Arab citizens are second class. Those people, who represent 20% of Israel's population, become the "non-Jewish" citizens of the "Jewish state" -- a contradiction with serious implications.
Jewish entitlements over non-Jewish citizens would naturally follow. Israel would continue to allow the right of return for Jews from all over the world but not to Palestinians who lost or were stripped of their own homes and property. Nor would Israel's own non-Jewish citizens naturally be entitled to seek family reunification inside the Jewish state, or any other such privileges afforded to Jews in a "Jewish" state. By achieving such acceptance, Israel would not be forced to undermine its Jewish character by allowing the repatriation of Palestinian refugees back into Israel.
Most importantly, it is illegitimate for Palestinian sovereignty to be contingent on this recognition and it is morally repugnant that the Palestinians must negotiate their freedom in this way. It is comparable to the Belfast agreement having been contingent on the IRA recognizing Northern Ireland as a "Protestant" entity. 
The first usage of the term "Jewish state" was by Theodor Herzl who in late 1895 wrote Der Judenstaat (The Jewish State) giving birth to the modern Zionist movement. There was no reference to a Jewish state by the Zionist Organization that he founded, preferring at first to use the description "Jewish homeland" or similar terms. In 1946, the Anglo-American Committee of Inquiry, also known as the Grady-Morrison Committee, noted that the demand for a Jewish State went beyond the obligations of either the Balfour Declaration or the Mandate, and had been expressly disowned by the Chairman of the Jewish Agency as recently as 1932.
Though the first usage of the term "Jewish State" by an American official was by Colin Powell in 2001, the U.S. has not officially recognized a Jewish State. The U.K. did not recognize a Jewish State.
Despite Israeli claims to the contrary, this is in fact a relatively recent demand. Israel never demanded this recognition during peace negotiations in the 1990s or early 2000s. It was not raised in previous rounds of negotiations either with the Palestinians or with any other Arab party.
It was not part of the Clinton administration-mediated Taba agreements or the Bush administration-brokered "road map" for peace. The Israelis first introduced the demand in 2007. 
The Palestinians cannot accede to this demand on two basic grounds: first, because defining Israel as a Jewish state prejudices the political and civic rights of Israel's Arab citizens, who comprise 20 percent of the population and whose second-class status would be consolidated by dint of recognizing the "Jewishness" of the state, and second, because to acknowledge Israel as the homeland of the Jewish people would compromise the Palestinian refugees' right of return, as there would be no moral or political grounds for them to return to a universally recognized Jewish state.
This is not a moot or exaggerated point. It touches on the very core of the conflict and its genesis. Indeed, it is the heart of the Zionist claim to Palestine: Palestine belongs to the Jews and their right to the land is antecedent and superior to that of the Arabs. This is what Zionism is all about, and what justifies both the Jewish return to the land and the dispossession of its Arab inhabitants.