Bush insists vision of Palestinian state lives

By Jeffrey Heller and Matt Spetalnick

WASHINGTON (Reuters) - U.S. President George W. Bush declared in farewell talks with Israeli Prime Minister Ehud Olmert on Monday that the vision of a Palestinian state remained alive, despite failure to achieve their goal of a peace deal this year.

With two months left in office, Bush reiterated that the eventual creation of a democratic Palestinian state alongside Israel -- an objective he now leaves to President-elect Barack Obama -- would help end decades of Middle East conflict.

"I believe that vision is alive and needs to be worked on," Bush told reporters as he and Olmert, who will also step down early next year, held a final meeting at the White House.

The United States, Israel and the Palestinians have all acknowledged they will not have a peace accord in place before Bush vacates the White House on January 20, missing a target date set at an Annapolis peace conference a year ago.

Most analysts were skeptical from the start, saying Bush's peace bid was too little, too late, after much of his two terms largely disengaged from Israeli-Palestinian diplomacy.

Despite that, Olmert -- who will leave under a cloud of corruption charges after a February 10 parliamentary election -- showered Bush with praise for setting the Annapolis process in motion and reaffirmed a two-state solution as the "only possible way" to achieve peace.

Obama, who visited Israel and the occupied West Bank in July, pledged at the time -- in an apparent swipe at Bush's last-minute peace efforts -- not to "wait a few years into my term or my second term if I'm elected" to press for a deal.

LAME-DUCK POLICIES

Although Olmert has vowed to pursue peace until his last day in office, little progress has been made in negotiations and public interest in Israel in the lame-duck leader's policies is waning as an election campaign gathers speed.

Opinion polls in Israel show former Prime Minister Benjamin Netanyahu's right-wing Likud party leading the ruling centrist Kadima faction in the election.

Netanyahu has said he would focus peace efforts on shoring up the Palestinian economy rather than on territorial issues, a policy that could spell the end of the Annapolis process.

Olmert has been increasingly vocal about what he sees as the need for Israel to relinquish nearly all the land it occupied in the 1967 Middle East war in return for peace, while retaining major Jewish settlement blocs.

Palestinian officials said the commitment came too late and Olmert's successor as Kadima leader, Foreign Minister Tzipi Livni, has not voiced support for his position.

"It's not easy to try to change the paradigm," Bush said, alluding to the obstacles to Israeli-Palestinian peace.

Bush had been looking for an end-of-term foreign policy success to boost a legacy burdened by the unpopular Iraq war.