Bush: Hopeful for Mideast peace deal by end of term

(Adds Rice quotes, paragraphs 14-16)

By Tabassum Zakaria

WASHINGTON, April 29 (Reuters) - U.S. President George W. Bush, seeking a Middle East peace legacy that eluded his predecessors, said on Tuesday he is still hopeful an Israeli-Palestinian deal can be reached before he leaves office in January.

Bush will encourage Israeli and Palestinian leaders to move forward when he meets them separately in Israel and Egypt during a May 8-13 trip that includes a visit to Saudi Arabia.

Negotiations have bogged down since Bush hosted a conference in Annapolis, Maryland, in November where both sides pledged to try to reach a peace deal by the end of his term.

Palestinian President Mahmoud Abbas, after meeting with Bush and Secretary of State Condoleezza Rice last week in Washington, came away disappointed and pessimistic about prospects for a deal this year, according to aides.

Bush offered a more optimistic assessment. "I'm still hopeful we'll get an agreement by the end of my presidency," he said at a news conference at the White House.

He accused Hamas, which controls the Gaza Strip, of trying to undermine peace efforts. But he avoided direct criticism of former U.S. President Jimmy Carter, who met the Palestinian group's leadership to try to pull them into peace talks with Abbas and Israeli Prime Minister Ehud Olmert.

Bush made clear he would not have similar engagement with Hamas, an Islamist group that advocates Israel's destruction and which the United States and the European Union consider a terrorist organization.

"They are a significant problem to world peace, or Middle Eastern peace. And that's the reason I'm not talking to them," Bush said.

The road to a peace agreement is strewn with obstacles.

Abbas, whose mainstream Fatah faction lost control of the Gaza Strip to Hamas in June, and Olmert face strong opposition at home to making concessions.

The fragile peace process has stalled amid Israeli settlement expansion plans and violence in and around Gaza, where Hamas cross-border rocket fire has drawn a tough Israeli military response.

Bush also accused Syria of helping Hamas and said there were "rumors" that Iran was also aiding the group.

"So when you want to talk about peace being difficult in the Middle East, it's going to be difficult, but it's even made more difficult by entities like Hamas," he said.

'DIFFICULT DECISIONS'

Speaking later to a Jewish group, Rice said Hamas leaders were "increasingly serving as the proxy warriors of an Iranian regime that is destabilizing the region, seeking a nuclear capability and proclaiming its desire to destroy Israel."

She said the United States was likely to impose additional bilateral sanctions on Iran over its suspected pursuit of nuclear weapons and she called for "intensive diplomatic activity" to try to persuade Iran to abandon such ambitions.

Iran says its nuclear program is for power generation.

Rice also urged Israel to make some sacrifices for peace.

"Difficult decisions are coming. Difficult decisions will have to be made," Rice told the American Jewish Committee. "Israel can be bold in the pursuit of peace, for America is fully behind her and fully committed to her security."

Bush, whose stated goal is the creation of a Palestinian state co-existing peacefully with Israel, said of his talks with Abbas and Olmert that "the attitude is good. People do understand the importance of getting a state defined."

Bush's visit to Israel will be his second this year. His January trip to Israel and the Palestinian West Bank was his first in seven years at the White House, raising skepticism about his commitment to the peace process.

As for his stop in Saudi Arabia, Bush is under pressure at home to do something about record-high oil prices that are dragging down the U.S. economy. The White House has said there is no short-term fix to the problem.

On his last visit to Saudi Arabia, Bush urged OPEC to boost production because the high price of oil was hurting the economies of its customers, but the oil group did not do so. (Additional reporting by Arshad Mohammed; Editing by Eric Beech)