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.”

JERUSALEM (AP) - Secretary of State Condoleezza Rice said Saturday she will ask Israel to remove more physical barriers erected in the West Bank as a bulwark against Palestinian militants.

The Bush administration also would like to see speedier progress toward a political settlement between Israel and the Palestinians, a goal of President Bush in his final year in office, Rice said en route to Israel and the West Bank for weekend meetings.

Bush's top diplomat said it's too early for pessimism, despite a lack of obvious accomplishment in talks Bush began with lofty ideals five months ago. Rice suggested she will lean on Israel to yank West Bank roadblocks that Palestinian President Mahmoud Abbas says strangle the Palestinian economy.

"I understand that everyone - President Abbas, I, the president, would like to see things move more quickly," Rice said. "That's why we keep coming and pressing all the parties to meet their obligations."

Palestinians complain that Israel has played bait-and-switch - removing tiny barriers and calling them roadblocks or only partially dismantling obstacles after pledging to pull them down. Rice said she will question the "qualitative character" of some roadblocks Israel has already removed.

"Not all roadblocks are created equal," Rice said with a wry smile. "We don't want to get into a numbers game where you just remove X number of roadblocks but it's not improving the lives of the Palestinians."

Since the outbreak of Israeli-Palestinian fighting in 2000, Israel has covered the West Bank with a network of hundreds of checkpoints, gates and earthen barriers that protect Jewish settlers in the West Bank and make it harder for would-be terrorists to cross into Israel. Israel says the barriers are a necessary response to a security threat, but they have also stifled the Palestinian economy and caused widespread hardship to ordinary Palestinians.

The International Monetary Fund warned last month that the limping Palestinian economy would contract unless Israel eases restrictions on movement in the West Bank. Israel has removed some obstacles in recent weeks, but the report, citing U.N. figures, said that as of March, the overall number of obstacles had increased.

Rice was meeting Israeli Prime Minister Ehud Olmert Saturday night, followed by meetings Sunday in Abbas' West Bank stronghold. Rice has visited the region nearly every month since the formal launch of peace talks last year, nudging both sides but yielding no public breakthroughs so far.

Speaking to reporters, Rice also addressed Palestinian concerns that Israel is undermining the work of ostensibly independent Palestinian security forces.

The United States recognizes Israel's security concerns, but Bush and others have sent strong messages "that when the Palestinians deploy, and when you're trying to give responsibility to the Palestinians, it's important not to take steps that undermine their authority," Rice said.

Hundreds of flag-waving Palestinian troops took up positions in the West Bank town of Jenin on Saturday - part of Abbas' attempt to assert control in preparation for what he hopes will be an Israeli withdrawal. However, the Israeli military and Abbas sharply disagree over whether the Palestinian forces are ready to replace Israeli troops.

The deployment of the security forces is part of Palestinian commitments under a U.S.-backed peace plan. Abbas is to rein in and disarm militants, while Israel must freeze settlement expansion and remove dozens of illegal settlement outposts.

In violation of its commitment, Israel has issued construction bids for hundreds more homes in settlements since the relaunch of Israeli-Palestinian peace talks in November. It has also failed to remove the outposts. On Friday, the "Quartet" of Mideast mediators again demanded that Israel halt construction.

The city of Nablus, which several months ago became the test case for Abbas' forces, is still raided regularly by Israeli troops searching for fugitives. Palestinian officials say such raids undermine the Palestinian security forces, but Israel says Palestinian troops too often co-opt, rather than confront militants.

Jenin is the second town in which newly trained Palestinian troops were deployed in large numbers, and the city of Hebron is next.

The U.S.-backed Palestinian prime minister said Monday that time is running short to demonstrate progress in the Israeli-Palestinian peace talks President Bush launched to fanfare last fall.

"Unless there is tangible progress in the period immediately ahead" on a list of pledges made by Israel, "I think, honestly, it would require that we begin to really call this for what it is," Palestinian Prime Minister Salam Fayyad said.

Fayyad did not write off the peace effort, but said there is good reason for skepticism.

"We just cannot continue to proceed as if things are going or proceeding in line with expectations, because so far they have not, to tell you the truth."

Fayyad was in Washington for meetings with Secretary of State Condoleezza Rice and others, as he courts world bankers, investors and leaders to help renovate the Palestinian economy.

Meanwhile, the State Department said Rice will go to the Mideast in early March. Peace talks have shown little measurable progress since Bush inaugurated the first bargaining in seven years at an international conference in Annapolis, Md.

Rice is expected to prod Israel and the Palestinians to bear down. Bush has said he wants to frame a deal this year, but Israeli and Palestinian politicians are beginning to air public doubts that the goal is realistic.

"Annapolis took place in November. We are now in February 2008," Fayyad said in answering questions at the National Press Club. "We need to begin to see progress, most certainly, in the hope that we are going to be able to reach agreement in 2008, and I hope that will be possible."

Israeli Foreign Minister Tzipi Livni, who heads Israel's negotiating team, warned Sunday that it would be impossible to reach an agreement as long as Hamas militants control the Gaza Strip, one of the territories Palestinians plan to use for an eventual independent state.

"There is no hope for any kind of peace or the vision of the Palestinian state which includes the Gaza Strip without real change on the ground," Livni told The Associated Press.

Fayyad lamented what he called a humanitarian crisis in Gaza, and blamed Israel as well as Hamas.

Hamas overran Gaza in June, expelling forces loyal to moderate Palestinian President Mahmoud Abbas. While Hamas controls Gaza, Abbas rules the West Bank. Hamas has done nothing to stop militants from using the tiny, densely populated territory to launch rocket attacks into Israel, and Israel responded with a near-total security seal that prevented Gazans from leaving and crippled cross-border commerce.

"You cannot leave 1.5 million Palestinians in Gaza without much to lose. I think that's really a huge mistake," Fayyad said. He called Israel's response "collective punishment," the term for illegal targeting of civilians for military advantage.

Besides launching dozens of crude rockets into southern Israel, Hamas has killed hundreds of Israelis in suicide bombings over the past decade. Last week, the group claimed responsibility for a suicide bombing in a southern Israeli town that killed a 73-year-old woman. It was the first such attack in Israel in more than a year.

Pressure has been building on Israeli Prime Minister Ehud Olmert to take even tougher action after an 8-year-old Israeli boy from the southern town of Sderot lost a leg in a Palestinian rocket attack on Saturday.

Several top officials have called on Olmert to begin assassinating the leaders of Hamas, and Sderot residents have held a series of public demonstrations.

Olmert has ruled out a large-scale invasion of Gaza for the time being.

President Bush received renewed promises of bargaining for Mideast peace and a polite hearing for his warnings about Iran, and he collected major bling from his Arab hosts.

But neither Israel nor its Arab neighbors assured Bush that they will do what the United States asks on issues ranging from democratic reform and unauthorized Israeli housing expansion to high gas prices.

Bush talked about oil prices with Saudi Arabia's King Abdullah, and the White House said Wednesday Bush was hopeful that OPEC would vote an increase in oil output. Bush thinks Abdullah understands the pain Americans are suffering at the pump, White House press secretary Dana Perino said. Saudi Arabia's oil minister has said the kingdom, responsible for almost one-third of the cartel's total output, would raise oil production when the market justified it.

The Mideast has been an object of disappointment for U.S. presidents for decades, and Bush has long avoided full immersion into its ageless, seemingly insoluble fights. If he was frustrated by the lack of specific accomplishments for his first major Mideast visit, he hid it well.

"I'm feeling quite feisty here," Bush said Tuesday, pronouncing himself to be in "a great mood" as the closely watched trip drew to a close. A day earlier he had collected enormous gold medallions in Abu Dhabi and Saudi Arabia, accepting the Saudi medal with a slight bow of the head and a double kiss for his host the king.

Bush was to head home Wednesday after a short stop in Egypt, one of only two Arab states to make peace with Israel but also the government he surely had in mind when he scolded Arab states Sunday for jailing dissidents and harassing political opponents.

Bush set low expectations for his eight-day visit to Israel, the West Bank and five Arab allies, as his hosts frequently did. He is widely unpopular in the Mideast apart from Israel, whose bidding many Arabs assume the United States will always do.

"I'm sure people view me as a war monger and I view myself as a peacemaker," Bush told ABC News in an interview broadcast Tuesday. "They view me as so pro-Israeli I can't be open-minded about Palestinian peace. ... You just have to fight through the stereotypes by actions."

Although pleased that Bush has given personal attention to peace efforts between Israel and the Palestinians, Arab leaders are skeptical that either side is ready or willing to make concessions. Their publics and sometimes timid press are openly skeptical that Bush is the man for the peacemaker's job. Bush says he wants a signed deal before he leaves office in a year.

In comments echoed by other diplomats, Egypt's ambassador to Washington has said the Bush administration has only months to show real progress and will be judged harshly if peace talks fall apart again.

"You're the arbiter now," Ambassador Nabil Fahmy said last month. "If it fails, it's your failure."

Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas gave Bush one thing to applaud even before he arrived. Olmert and Abbas, also known as Abu Mazen, held a face-to-face meeting to show momentum in the sluggish peace talks they began with Bush six weeks ago.

Notably, they never appeared together with Bush to reprise the triumphal group handshake that set the sunny tone at Bush's Annapolis, Md., peace conference. They used their public moments with Bush last week to score domestic political points.

Steven Cook, Mideast analyst at the Council on Foreign Relations, called the trip mostly a wash. He predicted that any momentum in the talks will falter after Bush goes home.

"Neither Olmert nor Abu Mazen want to embarrass the president while he is in the region, thus the positive talks," Cook said.

Under Bush's auspices, Israel and the Palestinians have relaunched negotiations after seven years of violence. Talks stalled immediately over Israeli construction in disputed territory and Palestinian militant activity. Negotiators resumed Monday, as they told Bush they would do, and began taking on the most contentious issues in their bitter conflict.

It is hard to say whether Olmert gave Bush much else.

Ahead of the visit, a spokesman said Olmert would tell Bush that Israel would move quickly to dismantle unauthorized West Bank settlement outposts, a promise he has made before. Bush pressed him anew but got no specifics, such as a tineline for evacuating the encampments, while he was in Jerusalem.

On Wednesday, the day Bush left the region, Israeli forces evacuated two makeshift settlement outposts near Nablus in the West Bank. Police and army forces arrived at the first outpost, Harchivi, and the five Israelis there fled at the sight of the forces, police spokesman Micky Rosenfeld said. At the second outpost, Shvut Ami, Israeli forces wrecked one of two concrete incomplete structures with a backhoe.

Meanwhile, a hawkish faction in Olmert's coalition pulled out of the government on Wednesday, weakening him at a time when he needs broad support to reach a peace deal. He still holds a slim majority in Parliament.

"Negotiations on the basis of land for peace is a fatal mistake," Avigdor Lieberman, head of the faction, told a news conference.

Bush is grateful for a strong Arab showing at Annapolis, and he said the peace question occupied much of his discussions with Abdullah, a key ally. None of the Arab states he visited has publicly followed up on Bush's call, in Jerusalem, to "reach out" to Israel.

Israel and the United States papered over their disagreement about a new U.S. intelligence assessment that Iran is not actively seeking a nuclear weapon and together lashed the clerical state as a threat to its neighbors and the world.

Bush didn't seem to win any converts among Arab states, who dislike or resent Iran's growing influence but fear warfare more. Gulf states and regional powerhouse Saudi Arabia have hosted Iran's hardline president and trade with the oil giant _ hardly the diplomatic and economic isolation that Bush urged.

"To the extent that containing Iran was the centerpiece of the trip, not much seems to have been accomplished," said James Dobbins, a Rand Corp. international security analyst. "The president's major address on that subject undoubtedly played better with American and Israeli listeners than his ostensible audience in the Arab Gulf."

Iran got nearly equal billing during the trip with the renewed Mideast peace talks.

The wealthy Arab dynasties showed Bush their modern sides, with displays of renewable energy research and meetings with women leaders and young business owners. But an Abu Dhabi auditorium was only two-thirds full when Bush delivered his mild rebuke to Arab political thuggery. Applause was light.

Closed-door discussions of Bush's "freedom agenda" sounded similarly restrained. "Heads nod," national security adviser Stephen Hadley said of the Persian Gulf leaders' response.

President Bush, in the Mideast to push along a peace deal by the end of his presidency, gave orders to both sides on Wednesday. He told Israelis that "illegal" settlement outposts in disputed land must go and told Palestinians that no part of their territories can be "a safe haven for terrorists."

On that, Bush was echoing his ally and host, Israeli Prime Minister Ehud Olmert, who said in their joint news conference that "there will be no peace" unless attacks are halted from all parts of the Palestinian territories, including those not controlled by his negotiating partners in the Palestinian leadership. Olmert, however, said that both sides "are very seriously trying to move forward" on a peace agreement.

"Israel does not tolerate and will not tolerate the continuation of these vicious attacks," Olmert said, after two and a half hours of talks with Bush that made him uncharacteristically late for their appearance. "We will not hesitate to take all the necessary measures. There will be no peace unless terror is stopped. And terror will have to be stopped everywhere."

On Wednesday, Israeli strikes in the Gaza Strip killed one militant and two civilians, according to Palestinian medics. The Israeli army said the attacks were needed because Palestinian militants had bombarded the rocket-scarred southern Israeli city of Sderot with rocket and mortar fire. Two houses in Sderot were struck, but there were no injuries.

On the first day of his eight-day Mideast trip aimed at encouraging a long-elusive Israeli-Palestinian agreement, Bush said: "I'm under no illusions. This is going to be hard work."

Bush said he and Olmert also discussed Iran's nuclear weapons ambitions and an incident Sunday when Iranian boats harassed and provoked three American Navy ships in the strategic Strait of Hormuz. U.S. officials said Iran threatened to explode the vessels, but the incident ended peacefully.

The president said "all options are on the table to secure our assets." He said serious consequences would follow another Iranian provocation. "My advice to them is don't do it," he said.

Bush found himself challenged by his Israeli allies on a recent U.S. intelligence report saying Iran halted a nuclear weapons program in 2003. Tehran's nuclear ambitions are a chief fear in Israel, and the U.S. report led some in the region _ both Israelis and Arab nations concerned about rising Iranian influence _ to doubt the U.S. commitment to reining in Tehran. The report also undercut U.S. efforts to build support for sanctions against Iran.

"The fact that they suspended the program was heartening," Bush said. "The fact that they had one was discouraging because they could restart it."

Clearing up confusion about U.S. policy toward Iran is a key subtext of Bush's trip, which will also take him to Kuwait, Bahrain, United Arab Emirates, Saudi Arabia and Egypt. Bush visits Palestinian President Mahmoud Abbas Thursday in the West Bank, a Palestinian territory. But he will not stop in or near the Gaza Strip, the other Palestinian territory which is controlled by Islamic Hamas militants who are not a party to negotiations. It was from Gaza that militants launched rockets Wednesday into southern Israel and where Palestinian hard-liners staged a small anti-Bush protest.

The president's national security adviser, Stephen Hadley, said the people of Gaza must at some point decide what kind of future they want and whether they want Hamas in charge. Such decisions will play a big role in what sort of Palestinian state can be created. "At this point, it's a pretty depressing situation," Hadley said of the split in Palestinian control.

Bush's arrival in Israel came amid ongoing land squabbles and fears of violence. There's been little headway since he hosted a splashy Mideast conference in November in Annapolis, which launched the first major peace talks in seven years.

But Olmert, despite his tough words on terror, spoke optimistically.

"Your visit is timely and is very important to encourage the process that you and Secretary Rice helped start in Annapolis few weeks ago and that we, both sides I believe are very seriously trying to move forward with now in order to realize the vision of a two-state solution," the Israeli leader said.

Bush said he believes both Olmert and Abbas "are determined to make the hard choices necessary."

"Am I nudging them forward? Well, my trip was a pretty significant nudge because yesterday they had a meeting," he said.

On the eve of Bush's arrival, Olmert and Abbas pledged to have negotiators begin work immediately on the so-called final status issues. These include the final borders between Israel and a future Palestine, completing claims to the holy city of Jerusalem, the fate of millions of Palestinian refugees and Israeli security concerns.

Bush and his team stepped into a tricky issue _ Palestinian anger about Israeli plans to build new housing in east Jerusalem and the West Bank. Those areas were captured by Israel in the 1967 Mideast war and are claimed by the Palestinians for their future state.

Secretary of State Condoleezza Rice said that Israeli construction in Palestinian-claimed east Jerusalem constitutes settlement activity and is opposed by the U.S. Rice's comments, published in The Jerusalem Post daily, marked the U.S. administration's strongest criticism yet of Israeli policies in disputed east Jerusalem. The Palestinians are expected to put settlements at the top of their agenda for their meetings with Bush.

Bush didn't go as far as Rice, but said of unauthorized Jewish outposts in the West Bank: "The agreement was get rid of outposts -- illegal outposts. And they ought to go."

OImert said Israel "must abide by our commitments and we shall do so."

Abbas adviser Nabil Amr said Bush's settlement comments were generally positive. "But we expected him to say that we don't want any more settlement activity, because the Israelis are using the tactic of not building new settlements, but enlarging the current ones, and this is dangerous," he said.

Amr said the United States needs to push, not coax, Israel. "Israel is not willing to provide anything without pressure, and the pressure has to come from the U.S.," he said.

Bush also indicated a willingness to address Israel's concerns with the Palestinians.

Upon arrival at the airport, he lent support to Israel on one of the core issues in the conflict. "The alliance between our two nations helps guarantee Israel's security as a Jewish state," Bush said.

Bush has referred to Israel as Jewish state in the past but the reference _ here in the region _ had special significance. Palestinians oppose the term, saying it rules out the right of Palestinian refugees to return to lost properties in Israel.

And in the news conference with Olmert, Bush said he would tell Abbas that his territory "cannot be a safe haven for terrorists."

Israel has demanded that Palestinian forces do more to stop militants not just in Gaza, but in the West Bank. Since Olmert and Abbas last met, two Israelis were killed in the West Bank, and Israeli security forces say members of Abbas' Fatah movement were responsible.

It is Bush's first presidential visit to Israel. Unpopular at home, he was greeted here with smiles and warm handshakes.

Bush's first formal meeting was with Israeli President Shimon Peres, at his official residence. Peres said the Annapolis conference started a one-year clock on the difficult Mideast peace process, underscoring Bush's hopes _ considered unrealistic by many in the Mideast and the United States _ to conclude a deal before he leaves office. "Time is so precious," Peres said.