TRIPOLI, Feb 13 (Reuters) - Palestinian refugees should capitalize on the wave of popular revolts in the Middle East by massing peacefully on the borders of Israel until it gives in to their demands, Libyan leader Muammar Gaddafi said on Sunday.

Gaddafi is respected in many parts of the Arab world for his uncompromising criticism of Israel and Arab leaders who have dealings with the Jewish state, though some people in the region dismiss his initiatives as unrealistic.

He was giving his first major speech since a popular uprising in neighboring Egypt forced President Hosni Mubarak to resign, an event which electrified the Arab world and prompted speculation that other Arab governments could also be toppled.

Fleets of boats should take Palestinians ... and wait by the Palestinian shores until the problem is resolved, Gaddafi was shown saying on state television. This is a time of popular revolutions.

We need to create a problem for the world. This is not a declaration of war. This is a call for peace, he said in a speech given to mark the birthday of the Prophet Mohamed, a holy day in the Islamic calendar.

Palestinians have long demanded that refugees who fled or were forced to leave in the war of Israel's creation in 1948 should be allowed to return, along with their descendants.

Israel says any resettlement of Palestinian refugees must occur outside of its borders.

Gaddafi also issued a call to Muslim countries to join forces against Western powers. He said the world was divided into white, denoting the United States, Europe and their allies, and green for the Muslim world.

The white color has decided to get rid of the green color, Gaddafi said. These countries should be united against the white color because all of these white countries are the enemies of Islam.

He also said: All Arab states which have relations with Israel are cowardly regimes.
              
Gaddafi has for decades challenged what he describes as Western imperialism. His oil exporting country spent years under international sanctions for seeking banned weapons and sponsoring militant groups.

These were lifted in 2004 when Gaddafi renounced his previous activities, though he still frequently deploys his colorful rhetoric against the West.

(Additional reporting by Souhail Karam in Rabat; Writing by Christian Lowe; Editing by Maria Golovnina)