Benjamin Netanyahu said that "painful concessions" from both sides would have to be made as direct peace negotiations between Israelis and Palestinians began for the first time in two years.
One day after US President Barack Obama made a personal appeal for peace, Secretary of State Hillary Clinton welcomed the Israeli prime minister and Mahmoud Abbas, the Palestinian president, to the State Department to begin talks aimed at establishing an independent Palestinian state.
"This will not be easy," Mr Netanyahu said as talks began. "A true peace, a lasting peace, (would) be achieved only with mutual and painful concessions from both sides."
"The people of Israel, and I as their prime minister, are prepared to walk this road and to go a long way - a long way in a short time - to achieve a genuine peace that will bring our people security, prosperity and good neighbors," Netanyahu added.
Mr Abbas reiterated calls for Israel to end settlement activity and stop the blockade of the Gaza Strip, something Israel has refused to agree to so far.
The direct peace talks, which Mr Obama hopes can reach a deal within a year, come after a 20-month hiatus. Negotiators face deep divisions among both Israelis and Palestinians over the prospects for peace.
"By being here today, you each have taken an important step toward freeing your peoples from the shackles of a history we cannot change and moving toward a future of peace and dignity that only you can create," Mrs Clinton said.
The Palestinian Islamist group Hamas, which seized control of the Gaza Strip from Abbas' Fatah party in 2007, denounced the talks and said it would keep on attacking Israelis.
Jewish settlers meanwhile vowed to launch new construction in their enclaves in the occupied West Bank, saying they could never accept a "phony peace" that curbs their right to live in what they consider Israel's biblical homeland.
Mr Obama, hosting the Washington talks ahead of the pivotal November US congressional elections, used separate meetings with Mr Netanyahu and Mr Abbas on Wednesday to urge them not to let the chance for peace slip away.
The issue of settlements looms large over the peace talks. Mr Abbas has warned he will walk out unless Israel extends its self-imposed moratorium before it expires on Sept. 26.
But Mr Netanyahu, who heads a coalition dominated by pro-settler parties, has resisted any formal extension of the partial construction freeze, meaning the fledgling negotiations will face a major challenge within weeks.
Four Israeli settlers were killed by Hamas in a shooting attack in the West Bank on Tuesday. Another two people were wounded in a similar attack by suspected Palestinian gunmen on Wednesday despite a crackdown by Palestinian police.
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