"There will be no peace if a significant part of Jerusalem is not the capital of the Palestinian state," Olmert said during a public appearance before northern residents.
Addressing the change in his political views over the years, the PM said: "When you sit on the chair of the prime minister, which isn't very comfortable, you have a panoramic view of everything, from end to end…when you see a panoramic image you have to reach different conclusions than the ones you reached when you only had a partial picture."
"I had to ask myself whether I will be clinging to the positions I espouses for all those years, or whether I will be moving forward," Olmert said. "Rabin, may he rest in peace, was getting there, but the bullet of an assassin stopped him. I started seeing things a little differently ever since than."
'Shalit rallies unhelpful'
The prime minister added that "we must not deceive ourselves; this move is inevitable," noting that "Ehud Barak almost understood it in Camp David in 2000."
"It is no secret that there are disagreements between us," Olmert said. "Yet he undertook a brave step. He was willing to renounce everything."
Turning his attention to abducted IDF soldier Gilad Shalit, Olmert said that rallies aimed at pressuring the government to secure Shalit's release aren't helpful.
"Rallies of 20,000 people are unconstructive," he said. "They boost Hamas – the scum of the earth who are holding Shalit."
Later Friday, the Group of Friends for Gilad Shalit slammed Olmert's remarks.
"We do not know whether the mass protests for Gilad indeed help, yet we know with certainty that Gilad has been in captivity for almost 1,000 days – which means Olmert is certainly not helping to bring him back," the group said. "He would therefore do well to talk less and do more."
Meanwhile, Gilad Shalit's father, Noam, said he does not wish to respond to Olmert's criticism .
"We will be in Jerusalem on Sunday and respond with actions," Noam Shalit said. "After Gilad has been in captivity for three years, Olmert's words sound a little pathetic.
Ahiya Raved contributed to the story