Abir Dandis, the mother of the two girls who were murdered in the Negev town of Al-Fura’a last week, couldn't find a police officer to listen to her warnings, neither in Arad nor in Ma’ale Adumim. Both police stations operate in areas where Israel wants to gather the Bedouin into permanent communities, against their will, in order to clear more land for Jewish communities. The dismissive treatment Dandis received shows how the Bedouin are considered simply to be lawbreakers by their very nature. But as a resident of the West Bank asking for help for her daughters, whose father was Israeli, Dandis faced the legal-bureaucratic maze created by the Oslo Accords.

The Palestinian police is not allowed to arrest Israeli civilians. It must hand suspects over to the Israel Police. The Palestinian police complain that in cases of Israelis suspected of committing crimes against Palestinian residents, the Israel Police tend not to investigate or prosecute them.

In addition, the town of Al-Azaria, where Dandis lives, is in Area B, under Palestinian civilian authority and Israeli security authority. According to the testimony of Palestinian residents, neither the IDF nor the Israel Police has any interest in internal Palestinian crime even though they have both the authority and the obligation to act in Area B.

The Palestinian police are limited in what it can do in Area B. Bringing in reinforcements or carrying weapons in emergency situations requires coordination with, and obtaining permission from, the IDF. If Dandis fears that the man who murdered her daughters is going to attack her as well, she has plenty of reason to fear that she will not receive appropriate, immediate police protection from either the Israelis or the Palestinians.

Dandis told Jack Khoury of Haaretz that the Ma’ale Adumim police referred her to the Palestinian Civil Affairs Coordination and Liaison Committee. Theoretically, this committee (which is subordinate to the Civil Affairs Ministry) is the logical place to go for such matters. Its parallel agency in Israel is the Civilian Liaison Committee (which is part of the Coordination and Liaison Administration - a part of the Civil Administration under the Coordinator of Government Activities in the Territories).

In their meetings, they are supposed to discuss matters such as settlers’ complaints about the high volume of the loudspeakers at mosques or Palestinians’ complaints about attacks by settlers. But the Palestinians see the Liaison Committee as a place to submit requests for permission to travel to Israel, and get the impression that its clerks do not have much power when faced with their Israeli counterparts. In any case, the coordination process is cumbersome and long.

The Palestinian police has a family welfare unit, and activists in Palestinian women’s organizations say that in recent years, its performance has improved. But, as stated, it has no authority over Israeli civilians and residents. Several non-governmental women’s groups also operate in the West Bank and in East Jerusalem, and women in similar situations approach them for help. The manager of one such organization told Haaretz that Dandis also fell victim to this confusing duplication of procedures and laws. Had Dandis approached her, she said, she would have referred her to Adalah, the Legal Center for Arab Minority Rights in Israel, which has expertise in navigating Israel’s laws and authorities.

John Kerry revealed his long-awaited plan for peace in the Middle East on Sunday, hinging on a $4bn (£2.6bn) investment in the Palestinian private sector.

The US secretary of state, speaking at the World Economic Forum on the Jordanian shores of the Dead Sea, told an audience including Israeli president Shimon Peres and Palestinian leader Mahmoud Abbas that an independent Palestinian economy is essential to achieving a sustainable peace.

Speaking under the conference banner "Breaking the Impasse", Kerry announced a plan that he promised would be "bigger, bolder and more ambitious" than anything since the Oslo accords, more than 20 years ago.

Tony Blair is to lead a group of private sector leaders in devising a plan to release the Palestinian economy from its dependence on international donors. The initial findings of Blair's taskforce, Kerry boasted, were "stunning", predicting a 50% increase in Palestinian GDP over three years, a cut of two-thirds in unemployment rates and almost double the Palestinian median wage. Currently, 40% of the Palestinian economy is supplied by donor aid.

Kerry assured Abbas that the economic plan was not a substitute for a political solution, which remains the US's "top priority".

Peres, who had taken the stage just minutes before, also issued a personal plea to his Palestinian counterpart to return to the negotiations.

"Let me say to my dear friend President Abbas," Peres said, "Should we really dance around the table? Lets sit together. You'll be surprised how much can be achieved in open, direct and organised meetings."

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

Appearing at an Israeli Embassy reception last Thursday to mark the 60th anniversary of the Jewish state, Vice President Cheney voiced a sentiment that is common among many American Jews, evangelicals and others. "Israel has never had a better friend in the White House than the 43rd president of the United States," he said.

Yet as President Bush prepares to return to Jerusalem this week to celebrate the milestone, that assessment is the subject of fierce debate both here and Israel. Few doubt the sincerity of Bush's passion, which has translated into unprecedented backing for Israeli self-defense and the most clearly stated presidential commitment to protect Israel if it is attacked.

But from left to right, Bush also faces criticism for pursuing Middle East policies that, many diplomats and analysts believe, have left Israel more threatened than when he assumed office in January 2001.

"The sum total is that if you measure Israeli security at the beginning of this administration and at the end of the administration, based on things the president either could have done, should have done or failed to do, the report card is pretty negative," said Daniel C. Kurtzer, who served as Bush's first-term ambassador to Israel.

Kurtzer, who now advises Democratic presidential candidate Barack Obama, cites, in part, what he sees as Bush's neglect of the peace process for most of his seven years in office. Despite the president's optimism that he can achieve a Palestinian-Israeli deal in his final year, Kurtzer and other analysts think Israel remains far from peace with its neighbors.

Meanwhile, the Israeli defense establishment is having second thoughts about Bush's decision to remove Saddam Hussein and the botched occupation of Iraq. Those policies, some argue, have helped fuel the rise of Israel's nemesis, Iran, whose president has spoken openly of trying to wipe Israel off the map. The war has also threatened to destabilize neighboring Jordan with a flood of refugees.

At first glance, the Iraq invasion "looked as if it would serve Israel's interest," said Shlomo Brom, a retired general and former director of strategic planning for the Israel Defense Forces. But "the way that it was implemented by this administration is eventually causing damage to Israel. It is strengthening the radical elements in the Middle East."

Brom concluded: "People are mistaken to think that the most friendly president is also the best president that Israel has ever had."

During a briefing for reporters last week, national security adviser Stephen J. Hadley rejected such criticism. He said Hussein's ouster, the peace talks, Bush's support for Israel's self-defense and a greater Arab willingness to accept the Jewish state have been a boon for Israel.

"The violence, the intifada, is now dramatically down; violence against Israeli civilians [is] dramatically down," he said. "A major strategic threat to Israel has been removed, and there is a real opportunity, both with Palestinians and with Arab states more generally, for a peace."

Hadley added: "That's not a bad seven years' work."

Salai Meridor, Israel's ambassador to the United States, said it is unfair to blame Bush for not containing or bringing about a peace settlement. The latter, he said, has been undermined by the Palestinians' inability, until recently, to find leaders who are genuine partners with Israel.

"Looking retrospectively, I seriously doubt there could have been anything achieved, even if the administration had brought all its efforts into this area," he said in an interview.

Israel remains the preeminent military power in the Middle East. It has nuclear weapons, strong conventional forces and the capability to strike at will, as it did in September when it destroyed what it believed to be a Syrian nuclear facility.

Last year, Israel signed a 10-year, $30 billion arms deal with Washington aimed at keeping that edge for years to come. Support for Israel's security from across the U.S. political spectrum appears "unshakable," as Obama put it in his own appearance at the Israeli Embassy celebration Thursday.

Still, Bush's approach to strengthening the U.S.-Israeli relationship has been unique -- and perhaps surprising to the Israelis, given their tense relations with his father, President George H.W. Bush, over West Bank settlements and other issues. The younger Bush came to power in 2001 with a basic sympathy to the Jewish state, nourished by a famous 1998 trip to Israel as Texas governor in which he was given a helicopter tour of the tiny country by then-Foreign Minister Ariel Sharon.

By the account of aides and those on the trip with him, the visit impressed Bush with a firsthand sense of Israel's tenuous security.

Once in office, Bush came to believe that the aggressive approach to brokering peace pursued by President Bill Clinton was a mistake--both because the United States could not, in his view, impose a solution on the two sides and because he believed Yasir Arafat to be an untrustworthy interlocutor for the Palestinians.

Bush moved early on to shun Arafat and to make clear he would deal with the Palestinians only if they put forward leaders "not compromised" by terrorism. The move was controversial, but Bush aides argued that it allowed the revival of a peace process late in his term, after Arafat died and was replaced by Mahmoud Abbas.

After the Sept. 11, 2001, attacks, Bush also identified Israel as a bulwark of his anti-terrorism efforts and showed complete sympathy for any steps Israel considered necessary to protect itself, even those criticized by the rest of the world. His strong support, during a four-year campaign of suicide bombings by Palestinian militants, cemented the affection many Israelis now feel for Bush -- and secured the admiration of leading Jewish groups in the United States.

"He increasingly became convinced that democracy is the ultimate tonic to the issues that plagued the Middle East," former White House adviser Dan Bartlett said. "The one true democracy that is a friend of ours is Israel."

But the commitment to democracy has had a price. Bush pressed Israel to allow elections in the Palestinian territories, which led to unexpected victories by Hamas, considered a terrorist group by both Israel and the United States.

Hamas, with the backing of Iran, has since seized power in Gaza and has repeatedly fired rockets into southern Israel. "Now Iran is on Israel's border," said Martin S. Indyk, a former ambassador to Israel.

Over the course of his administration, Bush has enjoyed warm relations with two Israeli prime ministers, including the present leader, Ehud Olmert, who has lavishly praised him and his policies. But Olmert's predecessor, Sharon, obtained perhaps Bush's biggest concession to Israel: a 2004 letter that made explicit the U.S. view that Israel should not have to return to its pre-1967 borders.

The letter has been widely interpreted in Israel as a green light to construct settlements in part of the occupied territory that Israel hopes to retain in final negotiations with the Palestinians on the contours of a new state.

The fear among many conservatives is that a final peace deal now sought by Bush could compromise these commitments. Dore Gold, a onetime adviser to Sharon and former Israeli ambassador to the United Nations, said it is too early to know the Bush administration's impact on Israel.

"If that agreement divides Jerusalem and strips Israel of defensible borders, then many will wonder about what precisely was the Bush legacy," Gold said.

President Bush sought to assure Palestinian Authority President Mahmoud Abbas yesterday that a peace agreement with Israel remains possible, as he began to accelerate his personal diplomacy in advance of his second trip to the Middle East this year.

"The thing that I'm focused on, and you are, is how to define a [Palestinian] state that is acceptable to both sides," Bush said. "I'm confident it can get done."

Bush met with Abbas at the White House amid pessimism in the region about the prospects for forging a deal to resolve the core issues that have divided the Israelis and Palestinians, including the borders of a Palestinian state and the status of Jerusalem. White House press secretary Dana Perino told reporters yesterday the two sides have made only "halting progress" since November's Annapolis peace conference.

Abbas and other Palestinian officials came to Washington this week looking for help from the administration in easing politically problematic conditions on the ground, including ongoing Israeli settlement construction in the West Bank and Israeli checkpoints that make movement difficult for many Palestinians.

Many senior Palestinians are worried that such activities erode public confidence in the peace process, according to Ghaith al-Omari, advocacy director for the American Task Force on Palestine. Abbas is also under domestic political pressure to show results from his close relationship with the Bush administration.

Abbas did most of the talking in his session with Bush, Perino said. "The president let him have his say about his hopes, his concerns, his commitment, his frustration, his seriousness," she said. "The president reaffirmed for him his belief . . . they can define a Palestinian state by the end of the year, but they are going to have to put their shoulder behind it."

Bush leaves for Israel next month for a visit aimed at celebrating the 60th anniversary of the founding of the Jewish state, but he will also engage in personal diplomacy. Bush met Wednesday with Jordan's King Abdullah II and will meet again with Abbas next month in Sharm el-Sheikh, Egypt. Some analysts have speculated that the meeting might amount to a kind of summit, but Israeli Prime Minister Ehud Olmert is considered unlikely to attend.

In comments at a White House photo opportunity with Bush, Abbas made no reference to Palestinian grievances -- though he alluded to the problems confronting peace negotiators. "I cannot say that the road to peace is paved with flowers," he said. "It is paved with obstacles. But together we will work very hard in order to eliminate those obstacles and achieve peace."

President Bush said Thursday that Palestinian refugees should receive compensation for the loss of homes they fled or were forced to flee during the establishment of Israel and declared that there should be an end to Israel's "occupation" of lands seized in war four decades ago.

Bush made his comments after becoming the first U.S. president to visit Ramallah, the West Bank city that is the headquarters of the Palestinian Authority, in an effort to invigorate negotiations aimed at securing a peace accord before the end of his presidency.

While Bush has previously used language describing Israel's presence in the West Bank as an "occupation," his words Thursday seemed a pointed prod at the Israeli government, coming on his first trip to the country during his presidency. Palestinians have long seen Bush as a partisan of Israel, but some welcomed parts of his statement.

At the same time, Bush restated his past formulation that Israel cannot be expected to give up all the land captured during the 1967 war, parts of which now have large Israeli settlements, and that the two sides must make territorial compromises that reflect "current realities."

"There should be an end to the occupation that began in 1967," Bush told reporters, referring to the Middle East war during which Israel captured the West Bank, Gaza Strip and Golan Heights. The third territory was seized from Syria, but a senior White House official said Thursday that Bush intended to refer only to the Palestinian areas.

"The agreement must establish Palestine as a homeland for the Palestinian people, just as Israel is a homeland for the Jewish people," Bush added. "These negotiations must ensure that Israel has secure, recognized and defensible borders. And they must ensure that the state of Palestine is viable, contiguous, sovereign and independent."

Throughout his visit to Jerusalem and the West Bank, Bush has sought to address the cynicism of Israelis and Palestinians, some of whom have accused him of merely mouthing rhetoric in his final-year drive for a peace deal.

As part of this effort, Bush named Air Force Lt. Gen. William M. Fraser III, assistant to the chairman of the Joint Chiefs of Staff, to monitor the two sides' progress in meeting their obligations under the so-called road map, including Israeli promises to freeze settlement activity in the West Bank and Palestinian pledges to crack down on armed attacks against Israel. Earlier U.S. efforts to induce the two sides to implement the road map have been unsuccessful.

White House aides also said that Bush would return to the region at least once before the end of the year -- a sign, they said, of his determination to push the parties toward peace.

After a day spent with the Israelis, Bush devoted much of Thursday to the Palestinians. To reach Ramallah, Bush's motorcade crossed one of the Israeli security checkpoints that have inhibited freedom of movement and much economic activity in the West Bank.

At a news conference with Palestinian Authority President Mahmoud Abbas, Bush said he could "understand why the Palestinians are frustrated driving through checkpoints." He added, "I can also understand that until confidence is gained on both sides, why the Israelis would want there to be a sense of security."

In most respects, Bush's statement Thursday represented a careful reformulation of established positions, packaged to provide the two sides with a basis to pursue negotiations. Bush began calling as early as 2002 for some of the key things he pointed to this week, with no success toward achieving his goal of two peaceful states, Israel and Palestine.

But his language Thursday on compensation was a first for his administration; Bush's repeated statements that Israel should be a "Jewish" state have been interpreted as support of the Israeli position that there should not be a wholesale return of Palestinian refugees to their erstwhile property in Israel.

Until now Bush has resisted the Clinton administration position that the refugees should receive compensation for their losses and suffering.

To encourage Israel to leave the Gaza Strip, Bush in April 2004 gave then-Prime Minister Ariel Sharon a letter saying in effect that Palestinians should expect to reside in a Palestinian state, not return to Israel, and that Israel could expect to retain large settlement blocs in any peace deal. The letter infuriated Palestinians because it had no balancing language for them.

In his statement Thursday, Bush said that "we need to look to the establishment of a Palestinian state and new international mechanisms, including compensation, to resolve the refugee issue." Previous estimates have put the cost of compensation at $100 billion to $150 billion.

Palestinian and Israeli officials reacted cautiously to Bush's pronouncements.

"I don't think either me, nor President Bush, nor anyone else can decide for refugees whether compensation is enough. This is up to every refugee to decide and this is an individual right that should be respected," said Mustafa Barghouti, a member of the Palestinian parliament.

Walid Awad, a spokesman for Abbas's Fatah political movement, described Bush's statement on ending the occupation as "his strongest statement and it is very much welcome. . . . It was said implicitly before but not as clearly as it was now."

Mark Regev, a spokesman for Israeli Prime Minister Ehud Olmert, said the Israeli government regards Bush's statement as "a positive framework for our talks with the Palestinians." He said the president's comment on occupation reflected his previous position.

Among the many unanswered questions in the wake of Bush's visit will be what to do about Gaza, the strip of land between southern Israel and the Mediterranean that since last summer has been under the control of the armed group Hamas, which opposes Israel's right to exist.

Bush acknowledged that Hamas's control of Gaza creates "a tough situation. I don't know whether you can solve it in a year or not."

"All the Palestinians till now reject any type of agreement between Mr. Abbas and President Bush," said Fawzi Barhoum, a Gaza-based spokesman for Hamas. "Bush supports clearly and frankly the occupation as a Jewish state and as such we want nothing to do with him."

President Bush said Thursday that a Palestinian-Israeli peace treaty could be signed within a year, but that the subsequent creation of a Palestinian state will take longer and require both sides to make "painful political concessions."

Those include, he said, an end to the Israeli "occupation" of Arab land seized in a 1967 war, a recognition by the Palestinians that some disputed territory will remain with Israel, and compromise over the status of Jerusalem, a city which both sides claim as important to their identity and faith.

"Now is the time to make difficult choices," Bush said as he wrapped up two days of meetings with Israeli and Palestinian leaders during his first trip to Israel as president. He vowed to prod both sides toward an agreement during the final months of his presidency.

Bush's summary remarks were delivered in Jerusalem, following an earlier appearance here in which he said he was optimistic that a peace agreement could be signed before he leaves office.

"I am confident that with proper help, the state of Palestine will emerge. And I'm confident when it emerges, it will be a major step toward peace," Bush said in a joint news conference in Ramallah with Palestinian Authority President Mahmoud Abbas. "I am confident that the status quo is unacceptable, Mr. President, and we want to help you."

White House officials announced that Lt. Gen. William M. Fraser III was being appointed to monitor the implementation of the Middle East road map, the document laying out the mutual obligations of the two sides on the path to a peace agreement. Bush introduced Fraser, now assistant to the chairman of the Joint Chiefs of Staff, to Abbas at their meeting this morning.

Bush is the second American president to visit Palestinian-controlled territory -- Bill Clinton visited Gaza and the West Bank in 1998. But since then, concerns about terrorism have broadened, and the Palestinians themselves have fractured. Abbas' more moderate Fatah movement controls the West Bank, while the militant Hamas movement is in effective control of Gaza, the small strip of Palestinian land between southern Israel and the Mediterranean.

Bush and his aides say they realize it will be difficult to translate a peace agreement into creation of a new Palestinian state. He and his advisers have made clear that they do not think it possible to achieve that goal -- which the president set five years ago -- during his presidency.

Instead they are hoping for an agreement on the elements of such a state, including its borders and the status of Jerusalem, with the implementation to come during a later administration. U.S. officials say they do not believe the Palestinians have the necessary security forces and other institutions to function as a state right now.

The more limited goal is still a tall order, as even Bush acknowledged. He and his advisers suggested Wednesday that his very presence here prompted Israeli Prime Minister Ehud Olmert and Abbas to direct their negotiating teams this week to get to work on "core issues," such as the future status of Jerusalem.

The current state of internal Palestinian affairs only complicates the matter, with governance divided between groups with disparate visions. While Abbas greeted Bush with a traditional embrace and kiss, Hamas-led protesters in Gaza on Wednesday burned the American flag and portrayed Bush as a vampire, and militants fired rockets into Israel. Hamas does not recognize Israel's right to exist.

Hamas' control of Gaza creates "a tough situation . . . I don't know if it can be solved in a year or not," Bush said, criticizing the militant movement for winning power in elections with promises of improved health care and education, but delivering "nothing but misery."

Nevertheless, he said he felt a treaty, at least, was within reach, and acknowledged the daily frustrations that the current conflict imposes on both sides. The weather made a planned helicopter trip impossible, so Bush traveled by motorcade from Jerusalem to Ramallah, his car moving swiftly through the Israeli checkpoints that Palestinians spend hours navigating as part of their daily life.

"I can understand why the Palestinians are frustrated driving through checkpoints," Bush said. "I can also understand that until confidence is gained on both sides, why the Israelis would want there to be a sense of security." Ultimately, he said, the new Palestinian state would need contiguous territory, and avoid the "Swiss cheese" of security outposts and settlements that add to the current conflict.

Abbas said he, too, was hopeful of achieving a peace deal by the end of 2008 and said he raised with Bush the question of stopping Israeli settlements in the West Bank, long a point of aggravation for the Palestinians.

"The president understood this issue," he said. The Palestinian leader said he regarded the Hamas takeover in Gaza as a coup. "They have to retreat from this coup," he said, then "we will have another talk."

After meeting with Abbas, Bush visited the Church of the Nativity in Bethlehem, and was due back in Jerusalem for further meetings with Olmert.

After visiting the Church, Bush said, "Some day I hope that as a result of a formation of a Palestinian state there won't be walls and checkpoints, that people will be able to move freely in a democratic state."

On Wednesday, as his first trip to Israel as president began, Bush pressed the idea that both sides needed to take action. He demanded that Israelis shut down unauthorized settler outposts on Palestinian territory, while calling on Palestinian authorities to take steps to halt rocket attacks against Israel. He also issued a sharp warning to Iran.

Even as he insisted he had not come to the region to impose the terms of a peace agreement on Israelis and Palestinians, Bush spent part of the first day of an eight-day trip to the Middle East issuing edicts to the parties -- or, in his words, nudging them toward an accord that he hopes will eventually lead to the creation of a Palestinian state and lasting Arab-Israeli peace.

"The only way to have lasting peace, the only way for an agreement to mean anything, is for the two parties to come together and make the difficult choices," Bush said at a news conference with Prime Minister Olmert. "But we'll help, and we want to help. If it looks like there needs to be a little pressure, Mr. Prime Minister, you know me well enough to know I'll be more than willing to provide it."

Bush is on his first extended tour of a region that has figured prominently in the foreign policy challenges confronting his administration. Accused of years of disengagement from Middle East peacemaking, Bush is making a last-ditch try for an Israeli-Palestinian accord, and also trying to marshal regional support for a policy of confrontation toward Iran.

Bush's visit is being watched closely in the region -- the arrival ceremony in Tel Aviv was shown live on Israeli television -- and security is tight. By 6 p.m., what would normally have been a congested rush hour in Jerusalem resembled light weekend traffic as some residents left work and many shops closed early.

In Bush's talks with Olmert and other Israeli officials, Iran's rising regional influence and nuclear ambitions were key concerns. While Israeli officials have made little secret of their skepticism about a recent U.S. intelligence report concluding that Iran halted its nuclear weapons program in 2003, Olmert professed himself pleased with Bush's assurances that he still took the threat seriously -- though he did not specify the nature of the assurances.

"I certainly am encouraged and reinforced, having heard the position of the United States under the leadership of George Bush, particularly on this subject," said Olmert, who seemed to embarrass Bush a bit with his lavish praise of the president's support and "courage."

Bush offered familiar rhetoric about the threat from Tehran but had sharp new language about the Sunday incident in which Iranian patrol boats harassed U.S. warships in the strategic Strait of Hormuz. "There will be serious consequences if they attack our ships, pure and simple. And my advice to them is, don't do it," Bush said.

From the moment Air Force One touched down in Tel Aviv to the late afternoon news conference at Olmert's residence, Bush displayed his customary optimism about the road ahead. "I view this as an historic moment," he said. "It's a historic opportunity."

But events on the ground Wednesday underscored the great obstacles ahead: Palestinians in the Gaza Strip fired 20 rockets and mortar shells into Israel, causing no major injuries. Three Palestinians in Gaza were killed in Israeli strikes, while the Israeli army launched ground attacks to pursue what it said were gunmen responsible for rocket attacks.

There were scattered protests in Ramallah as well on Thursday. Palestinian Authority police blocked a few hundred demonstrators from approaching the center of town, using batons to beat them back. One was left bleeding from the head. At least five people were arrested. Demonstrators chanted "Bush you are not welcome here," and carried signs calling him "the supporter of the occupation" and the "killer of Iraqi children."

The demonstration was led by five members of the Palestinian parliament, which is currently not meeting because many of its members were arrested by Israeli forces after Palestinian militants in Gaza captured Israeli soldier Gilad Shalit in July 2006.

Meanwhile, Israeli settlers in the West Bank constructed at least two new settlement outposts and expanded others in response to Bush's visit, according to Daniella Weiss, a veteran leader of the settlement movement.

Asked about such outposts at the news conference, Bush said that "they ought to go," but did not indicate what kind of pressure he would bring toward that end. He also said he would press Abbas at a meeting Thursday to curb the rocket attacks, even though they are launched from Gaza, a territory that the Palestinian Authority, headed by Abbas, does not control.

"I believe that he knows it's not in his interests to have people launching rockets from a part of the territory into Israel," Bush said.

Asked later how Bush expected Abbas to control the rockets, national security adviser Stephen J. Hadley acknowledged that Abbas does not control those behind the attacks, but added, "There's obviously communication he has with people of Gaza, and messages that he can send to the people who are doing those rockets."

Olmert said there would be no peace deal without an end to such attacks. "We made it clear to the Palestinians," he said. "They understand that Gaza must be a part of the package, and that as long as there will be terror from Gaza it will be very, very hard to reach any peaceful understanding between us and the Palestinians."