(IsraelNN.com) United States President-Elect Barack Obama will support the Saudi Initiative for peace between Israel and Arab nations, the British Sunday Times reported Sunday. Obama told Palestinian Authority Chairman Mahmoud Abbas, “The Israelis would be crazy not to accept this initiative,” according to the Times.

The initiative calls on Israel to withdraw completely to its 1949 borders in exchange for normalized relations with Arab League countries. It includes a full retreat from the eastern half of Jerusalem, including the Temple Mount, and from the strategic Golan Heights in northern Israel.

The Saudi Plan has won limited support from President Shimon Peres, who says it could be used to launch negotiations. Other senior politicians and defense officials have dismissed the plan, saying it wold compromise Israel's security.

Foreign Minister Tzipi Livni and Defense Minister Ehud Barak, the heads of the Kadima and Labor parties, have not ruled out the Saudi Initiative completely. However, neither has expressed willingness to give away the Temple Mount or major Israeli population centers located east of Israel's 1949 borders. Approximately 600,000 Israeli citizens live in the areas, including eastern neighborhoods of Jerusalem, demanded for the PA under the Saudi plan.

The plan also calls on Israel to find a solution for the plight of millions of foreign Arabs who claim descent from those who fled Israel during the War of Independence. They are considered refugees by Arab governments and continually have been denied citizenship in their countries of birth.

While proponents of the plan have welcomed the plan as a chance to deal with the refugees without granting them Israeli citizenship, some Arab leaders have warned that any alternative to allowing the millions to “return” to Israel is unacceptable. PA-based terrorist groups such as Hamas and Islamic Jihad are among those who insist that every Arab who identifies as a descendant of a former resident of Israel be allowed to live in Israel.

Abbas: Retreat or War
Palestinian Authority Chairman Mahmoud Abbas addressed a letter to PA Arabs on Saturday saying Israel must retreat to its 1949 borders or face war. “The passage of years... will not force us to abandon or surrender a single inch,” of Judea, Samaria or Jerusalem, Abbas said in the letter, which was published by PA media.

The letter was sent in honor of PA “Independence Day.” While the PA does not rule an independent country, it celebrates “independence” each year in honor of the PA having declared itself an independent entity 20 years ago.