He accused the Palestinian leader of "a cynical attempt to manipulate a non-issue, a fabrication which says that we in any way hurt Islamic holy places" by opening an archaeological tunnel in the Old City of Jerusalem. "The tunnel does not do this in any way, and the chairman of the Palestinian Authority knew exactly that."
Speaking to reporters in his Jerusalem office after a cabinet meeting, Mr Netanyahu blamed Mr Arafat for exploiting a religious issue, and the attendant fanaticism, "as a deliberate act of inciting the riots."
He charged the Palestinians with a triple violation of the Oslo peace agreements. "The first is the incitement, banned by Oslo. The second is the violence, banned by Oslo. And the third is the abrogation of the responsibility of keeping law and order, also stipulated by Oslo."
To get the peace negotiations back on course, Mr Netanyahu urged Mr Arafat to "give clear instructions to his security forces to cease and desist from these violent attacks. He has to start keeping order against terrorists and not firing weapons against Israeli soldiers. He must personally intervene to stop the incitement."
The Israeli Prime Minister offered no sweeteners in return, but appeared eager to get back to the negotiating table. "I am prepared to meet Mr Arafat. Our hand is stretched out in peace, and we expect a similar attitude from the Palestinian Authority."
At the same time, he insisted on Israel's right to self-defence. "We have instructed our military forces to take the necessary precautions to prevent such violent attacks on our soldiers. We don't want to use more force than we have to."
Mr Netanyahu also accused the Palestinians of lying about damage to the mosque area. Muslims claim the tunnel runs underneath the al-Aqsa compound, but archaeologists say it runs alongside it.