Israeli and Palestinian officials have agreed to work toward a peace deal before the end of 2008, U.S. President George W. Bush told delegates Tuesday at a Mideast conference in Annapolis, Md.

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U.S. President George W. Bush brings together Israeli Prime Minister Ehud Olmert, left, and Palestinian President Mahmoud Abbas, right, at the Mideast summit in Annapolis, Md., on Tuesday. ((Susan Walsh/Associated Press))

Flanked by Israeli Prime Minister Ehud Olmert and Palestinian Authority President Mahmoud Abbas, Bush said the two leaders agreed to "immediately launch good faith, bilateral negotiations in order to conclude a peace treaty resolving all outstanding issues, including core issues, without exception."

"Congratulations for your strong leadership," Bush told both leaders before the two shook hands. "We're off to a strong start."

In a speech to delegates from more than 40 countries ahead of Tuesday's group session at the U.S. Naval Academy, Bush emphasized that the aim of the meeting was torevive talks, not conclude a final peace agreement immediately.

"Today, Palestinians and Israelis each understand that helping the other to realize their aspirations is the key to realizing their own, and both require an independent, democratic, viable Palestinian state," Bush said.

"Such a state will provide Palestinians with the chance to lead lives of freedom, purpose and dignity. And such a state will help provide Israelis with something they have been seeking for generations: to live in peace with their neighbours."

The first peace talks are to be held Dec. 12, Bush said, with Abbas and Olmert meeting every two weeks after that.

Hesaid the Palestinian leadership "must demonstrate that a Palestinian state will create opportunity for all its citizens and govern justly and dismantle the infrastructure of terror.

At the same time, Bush said, Israel must demonstrate its support for the creation of a "prosperous and successful" Palestinian state by "removing unauthorized outposts, ending settlement expansion and finding other ways for the Palestinian Authority to exercise its responsibilities without compromising Israel's security."

Days of war, terror 'belong to the past': Abbas

Abbas said any Mideast peace deal should ensure that Palestinians have East Jerusalem as their capital.He also called for a halt to Jewish settlements in disputed lands.

"Tomorrow, we have to start comprehensive and deep negotiations on all issues of final status, including Jerusalem, refugees, borders, settlements, water and security and others," Abbas said.

"It is time for the circle of blood, violence and occupation to end. It is time for us to look at the future together with confidence and hope. It is time for this tortured land that has been called the land of love and peace to live up to its name."

Abbas told the Annapolis conference that the days of war and terrorism "belong to the past."

The beleaguered Palestinian leader has scrambled to secure his Fatah movement's position in the West Bank following the violent takeover of the Gaza Strip by Islamist rivals Hamas in June.

Hamas leader Ismail Haniyeh, who wasn't invited to the conference, said Palestinians and Arabs will reject any concessions made to Israel, the "Zionist enemy," during the summit.

A Hamas spokesmanalso saidAbbas has no mandate to speak for the Palestinian people in Annapolis.

"He is isolated and only represents himself," Fawzi Barhoum said.

Protesters took to the streets by the thousands in the Gaza Strip and parts of the West Bank to demonstrate against the Mideast summit.

'We will not avoid any subject': Olmert

But Olmert expressed hope for the summit, telling the conference hebelieved "we will be able to reach an agreement that will fulfill the vision of President Bush: two states for two peoples.

"We will not avoid any subject,"Olmert said. "While this will be an extremely difficult process for many of us, it is nevertheless inevitable. I know it. Many of my people know it. We are ready for it."

Speaking directly to Arab countries at the conference,Olmertadded it was time "to end the boycott and alienation toward the state of Israel."

Talks failed in past

The CBC's Henry Champ, reporting from Annapolis, said many people are skeptical about the possibility for peace because so many Middle East peace talks have failed in the past, including a meeting in 2000 between former U.S. president Bill Clinton, former Palestinian leader Yasser Arafat and former Israeli prime minister Ehud Barak.

"If it hadn't been for the numbers of failures that we'd had in the past, I think people would say this was a real breakthrough," Champ said. "The problem is we've seen this kind of thing before … You can't help but think we've been down this road before and we've always failed in the past."

Champ said for the latest round of peace talks, teams of negotiators will meet to discuss critical issues — where the borders of a future Palestinian state will lie, who will control Jerusalem, what to do with Jewish settlements in the West Bank and what to do for Palestinians who lost their homes when Israel formed in 1948.

Every two weeks, Olmert and Abbas will meet together, with the help of an American negotiator, to review the work of the teams.

David Makovsky, a Mideast analyst with the Washington Institute for Near East Policy, told CBC News that both Olmert and Abbas lack enough domestic support to sell a potential compromise.

But proponents of Annapolis emphasize the summit is merely a "front piece" before thesides hammer outdetailssurrounding the key issues in the coming months, said Janice Stein, director of the Munk Centre for International Studies at the University of Toronto.

"It's a little more than photo op," Stein told CBC News on Tuesday. "We'll be able to measure Annapolis in a year from now as the Bush presidency is in its final days."

Arab nations participate

The two-day conference is the Bush administration's first foray into jumpstarting Israeli-Palestinian peace negotiations, which have been stalled since the talks Clinton brokered at Camp David in 2000.

Arab League nations, including Saudi Arabia and Syria, are also attending the conference in a show of support for Abbas.

But before the conference, Saudi Foreign Minister Saud al-Faisal expressed reluctance and doubt over whether the parties can emerge with any form of substantial agreement, saying he would not participate in any "theatrical shows" of shaking hands with Israeli officials.

On Tuesday, heurged delegates to revive stalled peace talks between Israel and its Arab neighbors, Syria and Lebanon, as early as possible.

"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," said Saud.

"These talks must be followed by the launching of the Syrian and Lebanese tracks at the earliest."

Syria, technically in a state of war with Israel since 1967, agreed at the last minute to attend the conference with the hopes of including discussions on Israel returning the Golan Heights.

Meanwhile, Syria has told the peace conference that there can be no normalization of ties with Israel, until Israel first withdraws from all occupied land.

"To phrase it clearly and decisively,this [normalization] comes after the total Israeli withdrawal from the 1967 Arab land," Syrian Deputy Foreign Minister Fayssal al-Mekdad said in a speech obtained by Reuters.

With files from the Associated Press