The Prime Minister has warned Maori that if they take a hardline stance on the foreshore and seabed, the existing law could be left in place.
However, John Key says he believes a solution is possible if both sides are prepared to give ground.
Mr Key made the comments in the Bay of Islands where crowds have started to arrive for the 170th anniversary on Saturday of the signing of the Treaty of Waitangi.
The Prime Minister was welcomed on to Waitangi's Te Tii Marae on Friday where he said the National Party's bottom line remains that access to the beach should be guaranteed for all New Zealanders.
He says there are a number of options for the Government, including not repealing the present law if there is no compromise.
"We're at that point of all negotiations where we need to see whether we can make progress. In the end, there's always the options I outlined - which is the legislation stays on the books as it currently is, or there's a repeal and full access to the courts. But I think there's a better way for the majority of circumstances."
During his speech on the marae, Maori Party MP Hone Harawira said the Foreshore and Seabed Act was the largest confiscation of land in New Zealand's history.
Mr Harawira says he takes Mr Key's comments as a warning, but Maori will not back down over their demands that the Foreshore and Seabed Act should be repealed and replaced.
"I'm happy to work alongside John Key and everybody else to try and come up with a new solution but if it doesn't meet the kind of requirements that our people have expectations of, then I know that they will expect me to challenge it."
Labour Party leader Phil Goff says comments by Mr Key on the Foreshore and Seabed Act show how difficult an issue it is for the Government.
"I read into that the problems that the Prime Minister has. His party opposed the Foreshore and Seabed Act because he said it gave far too much to Maori; the Maori Party said it took far too much from Maori. They've got a major problem that they have to resolve."
Mr Goff says the present law already allows for Maori customary rights to be recognised while ensuring public access to the beach, but Labour would support a new law which ensures those two principles are retained.
Maori leader confident
The Prime Minister believes an agreement can be reached which meets the concerns of both Maori and non-Maori.
Maori Party co-leader Pita Sharples is also confident and says while there are differences, negotiations are going well.
"We're meeting regularly, almost every second week. The correspondence is going backwards and forwards between the two as well.
"It's a new thing for us, for New Zealand - and that's why I think it's really good how there's total cooperation between the iwi leaders group and the Government. It's a question of bringing the two worlds together, if you like."
Dr Sharples believes new legislation will be in place by the end of this year.
PM glad he made the trip
Prime Minister John Key says returning to Waitangi this year was the right decision and he is glad he made it.
Security was tight at Te Tii Marae after an incident last year in which Mr Key was jostled by two men as he stepped from his car. A line of police positioned themselves against the stone wall running alongside the marae.
Mr Key led more than 50 diplomats onto the marae from the southern end, rather than the main entrance. The diplomats are visiting Waitangi for the first time since 1995.
The Prime Minister was accompanied by Dr Sharples, who is also Maori Affairs Minister, and Maori activist Titewhai Harawira. He delivered a confident greeting in Maori and, along with his ministers and Maori Party leaders, was given a warm welcome.
Mr Key says Waitangi will always be a place where there are robust debates, exchanges of views and at times extreme actions.
However, he says those actions do not represent the overwhelming majority of people at Waitangi, or of New Zealanders in general who are celebrating Waitangi Day.
Payment demanded from media
Some media organisations were asked to pay a fee to enter Te Tii Marae at Waitangi on Friday.
A Ngapuhi elder asked reporters and cameramen to hand over hundreds of dollars to cover the celebrations. Kaumatua Hama Apihama told reporters some news organisations had already paid the money.
Radio New Zealand pays a koha, or donation, to enter the marae and does so every year.
The private radio network Newstalk ZB declined to pay $500 for marae access. Radio Live News and Sky TV say they have not been approached for payment. No media organisations were barred.
Waitangi National Trust chief executive Jeanette Richardson says more than 50,000 are expected to attend Saturday's commemoration of the 170th anniversary of the signing of the Treaty of Waitangi.
Ms Richardson says there has been an increase in the number of international visitors and media choosing to attend.