| ANNAPOLIS, Maryland
ANNAPOLIS, Maryland With handshakes, leaders of the United States, Israel and the Palestinians agreed on Tuesday to launch immediate talks to secure a peace treaty by the end of 2008 that would create a Palestinian state.
President George W. Bush announced the deal at the opening of a 44-nation Middle East peace conference, with Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas standing at his side.
"We're off to a strong start," Bush told delegates to the day-long conference, which included 14 Arab states -- among them Syria and Saudi Arabia -- as well as major powers Russia, China, Britain, France and Germany.
The U.S.-backed peace effort is the most intense in the seven years since the collapse of negotiations and the outbreak of Middle East violence in the twilight of Bill Clinton's presidency.
The sides must overcome deep skepticism everywhere. A treaty has eluded past U.S. leaders despite decades of trying.
Political weakness at home could hamper the leaders' ability to maneuver. Unpopular wars in Iraq and Lebanon have hurt the standing of Bush and Olmert. Abbas in June lost control of the Gaza Strip to Hamas Islamists.
In need of a boost to his legacy before leaving office in January 2009, Bush arranged for a handshake between the two leaders next to the podium where he announced the agreement to start talks immediately.
All smiles, the three leaders drew rounds of applause as they spoke to representatives gathered around a U-shaped table in a majestic hall at the U.S. Naval Academy in Annapolis, Maryland, 32 miles from Washington, D.C.
The accord emerged from lengthy, last-minute talks on a joint document meant to chart the course for negotiating the toughest "final status" issues of the conflict -- Jerusalem, borders, security and the fate of Palestinian refugees.
Bush said Israel and the Palestinians would try to reach an agreement on a treaty and statehood by the end of 2008. Their representatives would hold a first session in the Middle East on December 12 and Abbas and Olmert would meet every other week.
"We agreed to immediately launch good faith, bilateral negotiations in order to conclude a peace treaty resolving all outstanding issues, including core issues, without exception," Bush said, reading from a joint statement.
"The time is right, the cause is just, and with hard effort, I know they can succeed," Bush said.
Underscoring the challenges ahead, a senior official of Hamas declared Annapolis a "waste of time."
In the West Bank city of Hebron -- where Palestinians protested against the peace conference -- a demonstrator was killed when clashes broke out between security forces loyal to Abbas and Islamists who brand him a traitor.
German Foreign Minister Frank-Walter Steinmeier said the new deal fell short of a breakthrough, telling reporters in Annapolis: "I will call it a breakthrough when we have made progress on the substantive questions."
Abbas put forward some key demands. He said Palestinians wanted Israeli-annexed East Jerusalem as capital of "our state" while Israel regards all of Jerusalem as its capital, a claim not recognized internationally.
"Time has come for the cycle of blood, violence and occupation to come to an end," Abbas said in Arabic through an interpreter.
Olmert, reaching out to Arab delegates by using the Arabic phrase for "welcome," said Israel was ready for painful compromises, suggesting his country would cede West Bank land it occupied in the 1967 Middle East war.
"I have no doubt that the reality created in our region in 1967 will change significantly. While this will be an extremely difficult process for us, it is nevertheless inevitable. I know it. Many of my people know it. We are ready for it," he said.
But signaling further difficulties, he did not address the issue of the 270,000 Jews who live in settlements scattered among the 2.5 million Palestinians in the West Bank. Israel has said it wants to hold on to major settlement blocs in any future peace deal.
By contrast Bush called for an end to settlement expansion while urging Palestinians to rein in militants.
The joint document assigned the United States a key role -- judging whether the parties are fulfilling their requirements under the 2003 U.S.-backed "road map" to peace.
Bush has faced criticism for not having done more sooner, and it was unclear how hard he would push the parties to make compromises.
In a speech to the conference Saudi Foreign Minister Prince Saud al-Faisal argued for a wider Arab-Israeli peace.
"We have come to support the launching of serious and continuing talks between the Palestinians and the Israelis that will address all the core and final status issues. These talks must be followed by the launching of the Syrian and Lebanese tracks at the earliest," he said.
(Additional reporting by Jeffrey Heller, Adam Entous, Mohammed Assadi, Caren Bohan and Tabassum Zakaria in Washington, Khaled Yacoub Oweis in Annapolis, Nidal al-Mughrabi in Gaza, Reza Derakhshi in Tehran, Wafa Amr in Ramallah and Rebecca Harrison in Jerusalem; Writing by Steve Holland and Howard Goller; Editing by David Storey)