Rice urges deeper Mideast talks

By Sue Pleming

RAMALLAH, West Bank (Reuters) - U.S. Secretary of State Condoleezza Rice pressed Israel and the Palestinians on Thursday to talk about the key issues that would lead to the creation of a Palestinian state.

The most troublesome of these are the so-called final status matters -- the future of Jerusalem, the borders of a Palestinian state and the right of return for refugees.

"Eventually you do have to solve the issue of refugees, borders and Jerusalem," Rice told reporters en route to Washington from Tel Aviv.

Israel is balking at such a broad commitment at this stage. But Rice noted Prime Minister Ehud Olmert had said he was ready to discuss fundamental issues leading to a Palestinian state, though she gave no details.

"I don't want to try and presage what they talk about. I was impressed by the seriousness of both men to really advance this two state solution," she said of Olmert and Abbas, who are due to meet next week.

At an earlier news conference with Palestinian President Mahmoud Abbas she called for a "deepening of the dialogue between the Palestinians and the Israelis on all of the issues that will lead ultimately to the founding of a Palestinian state."

Six weeks after Hamas Islamists took over the Gaza Strip, Rice visited the West Bank to bolster the Fatah leader and his government and promote a U.S.-backed Middle East peace conference due later this year.

"This time I emphasized more a sense of where this is going for the Palestinian people who want a better life than Hamas is offering them in Gaza," said Rice, who headed for home after a four-day trip.

Israeli officials have spoken of formulating with Abbas "agreed principles" for establishing a Palestinian state.

At the news conference with Rice, Abbas spoke of negotiating what he termed a "declaration of principles". He said it was important for Palestinians "to know what the result will be, what the end game will be".

One senior Israeli government official said Israel was prepared to begin discussing border issues in general terms with Abbas, but saw the fate of Jerusalem and Palestinian refugees as too sensitive for the time being.

SECURITY FUNDING

Olmert told Rice on Wednesday that Hamas, which has rejected international calls to recognize Israel, renounce violence and accept existing interim peace deals, had to be "kept out of the game" as Israel explores new cooperation with the Palestinians.

Ahead of her talks with Abbas, Rice signed a framework agreement with Prime Minister Salam Fayyad's government to provide U.S. funding for Abbas's security forces. The agreement outlines terms and conditions under which the money can be used.

A senior official traveling with Rice said the funding was part of about $80 million promised by the Bush administration to reform the security forces. An initial amount of about $10 million would be handed over, he said.

In a statement, Hamas said the funding showed that Rice "did not come to build a Palestinian state but to build up services of death to pursue resistance factions".

The U.S. Congress has in recent months held up funding for Abbas's security needs, fearing the money could reach the wrong hands.

On her four-day trip to the Middle East, Rice won tacit Saudi backing for the regional peace conference proposed by U.S. President George W. Bush. A senior U.S. official said it would most likely be held after mid-October.

Analysts are pessimistic about Rice's new push that comes at a time when the Palestinian territories are divided between Hamas, which seized the Gaza Strip in June, and Abbas's secular Fatah whose forces dominate the West Bank.

Bush has just 17 months left in office and despite labeling the Israeli-Palestinian conflict a priority, his most pressing concern is Iraq and mounting domestic pressure to bring U.S. troops home.

Rice left for Washington after meeting Abbas. She has made clear she has faith in him and says he is entitled to negotiate on behalf of all Palestinians.

(Additional reporting by Adam Entous in Jerusalem, Mohammed Assadi in Ramallah and Nidal al-Mughrabi in Gaza)