"Abu Mazen and all these evil people should perish from this world, God should strike them with a plague, them and these Palestinians."
Before long, there was a condemnation from the US State Department:
We regret and condemn the inflammatory statements by Rabbi Ovadia Yosef. These remarks are not only deeply offensive, but incitement such as this hurts the cause of peace.
And the Palestinians, courtesy of Saeb Erekat, also complained to the world:
Is this how the Israeli government prepares its public for a peace agreement? While the PLO is ready to resume negotiations in seriousness and good faith, a member of the Israeli government is calling for our destruction. It is an insult to all our efforts to advance the negotiations process."
Even Rav Eliashiv made a comment:
There's no sense in aggravating the whole world
From the minute this hit the press, I was hoping something wasn't right. Yes, R' Ovadia has made inflammatory remarks in the past but he's also been deliberately mistranslated so many times (including the famous 'IDF soldiers died in Lebanon because they didn't keep mitzvot' line, which I was in attendance for, and was never uttered) that I was hoping there was an error.
Today, I finally found a clip of the speech. This is what R' Ovadia said:
אבו-מאזן וכל הרשעים האלה, שיאבדו מן העולם. יכה בהם הקדוש ברוך הוא מכת דבר, בהם ובפלסטינים האלה, רשעים צוררי ישראל
When I heard this, I realized straight away how R' Ovadia's words had been twisted. But first, the translation:
Abu-Mazen and all those evil doers, may they be lost from this world. May Hashem strike them down in a plague, them and those Palestinians, evil persecutors of Israel.
Going by what I heard and read, it seems that R' Ovadia has a (legitimate) gripe with Abu Mazen (despite how he portrays himself today, he still openly denies the Holocaust's severity and was a major financier & planner of terrorist attacks against Jews in Israel and abroad) and Palestinians who cause evil to Israel. The last part is key. R' Ovadia isn't calling for genocide towards the Palestinian nation, he's asking Hashem to strike down those in their nation who cause evil to Israel. I doubt R' Ovadia would have used the term 'those' if he had intended to include all the Palestinians in his statement ... He would have just said, "בהם ובפלסטינים" (them and the Palestinians, or like Haaretz twisted his comment originally).
For more into the context of the speech, see Veranen Yaakov, and for another take on the statement, see Yaakov Lozowick