Bush, on his first presidential visit to Israel, had said before his trip that the issue would be central during his talks with senior officials in Jerusalem.
Regarding the peace process between Israel and the Palestinians, the president said that while the United States was willing to help the two sides reach an agreement, peace meant concessions from both.
He said that Arab states must support the Palestinians as they make tough choices, but was very hopeful he could achieve an agreement between the two sides.
Speaking first at the press conference that followed their two hour-meeting, Olmert said that both Israelis and Palestinians are very seriously trying to move forward to realize a vision of a two-state solution.
He said Israel was serious about implementing the road map peace plan for creation of a Palestinian state next to Israel.
"Both sides, I believe, are very seriously trying to move forward in order to realize the vision of two states living side by side in peace," Olmert said.
But, referring to a Qassam rocket barrage on southern Israel on Wednesday, the prime minister said there will be no peace unless Palestinians terror is stopped.
"Gaza is part of a package," he said. "There will be no peace unless terror is stopped - and stopped everywhere."
Bush said upon his arrival earlier in the day that he had come to the region with high hopes that a Middle East peace deal could be achieved before he leaves office at the end of the year.
"I come as an optimistic person and a realistic person - realistic in my
understanding that it's vital for the world to fight terrorists to confront those who would murder the innocent to achieve political objectives," Bush told President Shimon Peres during a meeting at Peres' Jerusalem residence.
"I come with high hopes, and the role of the United States will be to foster a vision of peace. The role of the Israeli leadership and the Palestinian leadership is going to do the hard work necessary to define a vision," Bush said.
Regarding Iran, which Israel and the United States accuse of developing a nuclear weapons program, Bush said that "the international community must understand with clarity the threat Iran poses to world peace."
While the U.S. National Intelligence Estimate released last month said that Iran halted its nuclear program in 2003, Bush said that that "the Iranians had a covert military program that was suspended... I interpreted the NIE to mean you should take Iran seriously."
Bush's visit seeks to advance peace talks, following on from the U.S.-hosted international peace summit in Annapolis, Maryland last November.
"We seek lasting peace. We see a new opportunity for peace here in the holy land and for freedom across the region," Bush said during the official reception for him at Ben-Gurion International Airport in Tel Aviv.
"We will discuss our deep desire for security and freedom and for peace throughout the Middle East," he added.
"The alliance between our two nations helps guarantee Israel's security as a Jewish state," Bush added, bolstering Israel's bid to secure Palestinian recognition of Israel as Jewish in character.
Bush was greeted at the airport by Peres and Olmert, Supreme Court President Dorit Beinisch, Israel's chief rabbis and other Israeli dignitaries.
Speaking at the reception, Olmert paid tribute to Bush, saying that his policies showed an "understanding" of the difficulties Israel faces.
"From the beginning, your policies have reflected a basic understanding of the challenges facing Israel in this troubled region, and a solid commitment to our national security," Olmert told Bush. "You're our strongest and most trusted ally."
In his welcoming speech, Peres referred to the two-state "vision" outlined by Bush in 2002, telling his American counterpart that this had become "the basis for negotiations" between Israelis and Palestinians.
"On your way here, you said that 2008 should be the pathway from words to action, from aspiration to reality," Peres said. "Indeed, the next 12 months will be a moment of truth. It must not yield just words."
"Destructive armament, belligerence, and terror will capture center stage," he said. "Wars are never too late. Peace is never too early. We have no right to miss this opportunity."
Peres also mentioned Iran, another issue set to take center stage during Bush's trip.
"We take your advice not to underestimate the Iranian threat," he said. But, he warned, "Iran should not underestimate Israel's resolve for self-defense."
Following the reception at the airport, Bush was transported by helicopter to Jerusalem, where he will stay until his departure Friday.
The U.S. president met with Peres to discuss steps to improve the Palestinian economy and support regional financial initiatives.
During his visit, the president was also scheduled to hold talks with Palestinian President Mahmoud Abbas. He was to travel to Christian holy sites in northern Israel, as well as Bethlehem, and visit the Yad Vashem Holocaust Museum in Jerusalem.
From Israel, he will continue with a tour of the region, visiting Saudi Arabia, Kuwait, Bahrain, the United Arab Emirates and Egypt.
Ramon: Bush trip could help accelerate talks
Vice Premier Haim Ramon said ahead of Bush's arrival Wednesday that the presidential visit would "certainly" help accelerate peace talks between Israel and the Palestinians.
The visit, Bush's first time in Israel since he entered the White House seven years ago, comes a day after Olmert and Abbas agreed that the two sides would hold talks on the core issues of the conflict.
Ramon told Army Radio that Israel and the Palestinians were somewhat belatedly beginning to discuss the most contentious subjects, and that he believed Bush's visit will help the sides reach an agreement.
"I am happy that we are beginning to talk on the subjects that perhaps we should have begun to talk about earlier," Ramon said. "Both sides relate to his [Bush's] requests and his wishes and his visit will certainly accelerate the talks."
The U.S. entourage includes hundreds of advisers, security agents and even cooks, who will supervise the food served to Bush at Jerusalem's King David Hotel.
About 1,000 rooms in three different hotels have been booked to lodge the massive delegation. In honor of Bush, Jerusalem's municipal council has decided to shut off the lights illuminating the Old City's walls to allow Bush to see it under the natural moonlight.
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