"We will not let anyone question our right to exist," he told lawmakers gathered at the Knesset in Jerusalem for the swearing-in of the new coalition. "Israel can`t afford to treat statements against it light-heartedly."
In his address, Netanyahu called radical Islam and the Iranian regime major threats to regional security, but praised Islamic culture as "great and rich, with many branches in our people's history which has known periods which flourished for Arabs and Jews who lived together and created together."
He said that blocking the Iranian nuclear program was in the interest of both Israel and the Muslim world, adding that he hoped the region could work together "to block terrorism in every direction and fight it until the end."
"Israel has always, and today more than ever, strives to reach full peace with the entire Arab and Muslim world, and today that yearning is supported by a joint interest of Israel and the Arab states against the fanatical obstacle that threatens us all," he said.
Netanyahu did not explicitly endorse an independent Palestinian state while declaring his commitment to peace, but said: "We do not wish to rule another people. We do not want to rule the Palestinians... Under the permanent status agreement, the Palestinians will have all the authority necessary to rule themselves."
He also warned the Palestinian Authority that it must do its part to fight terror if it is serious about peace.
"I say to the Palestinian leadership that if you really want peace we can achieve peace," Netanyahu told a Knesset session interrupted by heckling from Arab and left-wing lawmakers.
He offered negotiations on "three parallel tracks, economic, security and diplomatic" with the Palestinian Authority.
Netanyahu also pledged to do whatever it takes to free abducted Israel Defense Forces soldier Gilad Shalit, who has been in Palestinian captivity since he was abducted in a 2006 cross-border raid from the Gaza Strip.
The incoming premier promised that his government would "work to bolster national security and achieve personal security for Israel's citizens... maintain the Jewish character of the state and Jewish tradition, and also respect the religions and traditions of the country's ethnic communities."
Netanyahu thanked outgoing Prime Minister Ehud Olmert for his "devoted service" to the state, and promised to engage in peace talks with "sincerity and a clear mind."
Following his address, Netanyahu began to name the 30 new ministers and deputy ministers appointed to serve in the new government coalition, set to be voted in at the end of the ceremony.
Olmert delivered his final speech as premier just before Netanyahu's address, urging the new coalition to follow in his government's path and make the peace process a central focus of the coming term.
"Our avid peace efforts were acknowledged by the international community," he said. In particular, the outgoing prime minister called on Netanyahu to continue on the Syria track, a process which Olmert jumpstarted during his term.
"As I step down from the premiership, I am not the least bit resentful," Olmert said, adding that he was proud of his own government's achievements.
Olmert's tenure as prime minister was heavily criticized throughout, with two wars and a dozen investigations into his alleged corruption.
During his address, the outgoing prime minister defended his government's decision to carry out the 2006 war in Lebanon and the recent operation in the Gaza Strip.
The Israel Defense Forces is "most moral army in the world," Olmert declared, adding that this was evident by Israel's actions during its offensive on the Gaza Strip earlier this year.
He also defended the government's decision to carry out the 2006 Second Lebanon War against Hezbollah militants, despite widespread criticism of the state's handling of that war.
"The outcomes of Second Lebanon War, in long run, are positive," Olmert said, adding that the war "changed strategic balance along the border in our favor."
Opposition leader Tzipi Livni, who lost out on the opportunity to form the new government despite her Kadima party's slim win in the February elections, took the podium to deliver the third address at the government swearing in.
She began her speech by wishing the new government success, but quickly added that could not wish success to a coalition deal that would "not benefit the state at all."
She then vowed that under her leadership, the opposition would act responsibly to bring the public's faith back to the Knesset.
