PARIS, Oct 20 (Reuters/John Irish) - Israel's Labour Party would walk out of Prime Minister Benjamin Netanyahu's government if peace talks with the Palestinians do not resume by the end of the year, a senior figure in the party said on Wednesday.

We will force the Labour Party to move out, Minorities Affairs Minister Avishay Braverman, who intends to challenge Defence Minister Ehud Barak for Labour's leadership, told Reuters.

I will do everything I can, he said in an interview at a left-wing think tank in Paris. I don't want to put a gun to (Netanyahu's) head, but our assessment is January if there is no movement in the peace process.

US-brokered peace negotiations began on Sept. 2, but the Palestinians suspended the talks after a 10-month Israeli moratorium on housing starts in settlements in the occupied West Bank expired on Sept. 26.

Palestinians fear settlements will deny them a viable and contiguous state. Netanyahu says their future should be decided at the negotiating table and not serve as a condition for talks.

Barak, who has held extensive discussions with Washington on US proposals to get negotiations under way again, has so far resisted giving Netanyahu any ultimatum on the future of centre-left Labour in his government.

Labour holds 13 of the 71 seats that Netanyahu controls in the 120-member parliament and its defection could bring down the government, led by his right-wing Likud party.

But Labour, once the dominating force in Israeli politics, is languishing in the polls, and a new election could weaken it further.

Braverman called on Netanyahu to make decisions on what was important and not marginal, proposing a four to five month freeze on settlements with minor exceptions, supported by the Palestinians and the United States.

The settlement freeze has become a major issue, but for me the key question is the survival of Jewish state and the equality of all its citizens, he said.

If we don't move bravely to the partition of the Holy Land... eventually the United nations may declare one state west of the Jordan river turning Israel into a cumbersome country with an Arab majority.

In the interview, Braverman repeated his opposition to controversial legislation that would require candidates for Israel citizenship to pledge loyalty to Israel as a Jewish state, a measure Israeli Arabs have criticised as racist.

Braverman said Labour would do everything it could to oppose the law but would not bolt the coalition over the issue.

This is a stupid law, unwise, it's very popular in public, but the role of leadership is to not look at Twitter, but what benefits the Jewish people, the former World Bank senior economist said.