Finance Minister Yair Lapid, whose new centrist party is the second largest in Israel's government, said on Monday thousands of Jewish settlers would have to be removed from occupied land under any peace deal with the Palestinians.
But, echoing Prime Minister Benjamin Netanyahu's position, Lapid said Israel intended to hold onto major settlement blocs in the West Bank when final borders are set in the six-decade-old Israeli-Palestinian conflict.
"It's heartbreaking. We will have to remove tens of thousands, not just from their homes, but from their dreams," he said, speaking at a business conference in Tel Aviv. But, he added: "The settlement blocs will remain in Israel."
Lapid did not say which settlements he felt would need to be evacuated. Some 80 percent of 340,000 settlers in the West Bank live in large clusters near Jerusalem and central Israel.
Lapid's Yesh Atid party soared to a surprising second place finish in the January general election and joined the right-wing Netanyahu's coalition.
The former TV news anchor's pre-election promise to partner with Netanyahu only if Israel entered into negotiations with the Palestinians raised hopes among Western powers that Lapid could push the premier into peacemaking concessions.
U.S.-brokered peace talks broke down in 2010 in a dispute over continuing Israeli settlement construction in the West Bank. Palestinians have demanded a settlement freeze as a condition for returning to the negotiations.
Netanyahu, speaking in general terms, has said that Israel is prepared for a "meaningful compromise" with the Palestinians, noting that it has withdrawn from occupied territory in the past, such as the Gaza Strip in 2005 and south Lebanon in 2000.
But he has rejected any Israeli return to the lines that existed before Israel captured the West Bank, Gaza Strip and East Jerusalem in the 1967 Middle East war, calling those boundaries indefensible.
Palestinians seek to establish a state in the West Bank and Gaza with East Jerusalem as its capital.Some 500,000 Israelis have settled in the West Bank and East Jerusalem. About 2.7 million Palestinians live in those areas.
Lapid, speaking just days before U.S. Secretary of State John Kerry returns to the region to try to restart negotiations, questioned Palestinian leaders' commitment to pursuing peace.
"Abu Mazen (Palestinian President Mahmoud Abbas) is one of the founders of the Palestinian victimhood doctrine and at this stage I do not see him taking one step in our direction," Lapid said.
He was referring to the view of some Israelis that Palestinian leaders focus more on highlighting Palestinian suffering at Israel's hands than on making compromises that might hasten the establishment of an independent state.
Kerry is to meet separately with Netanyahu and Abbas in Jerusalem and the West Bank city of Ramallah on Thursday and Friday.