OCCUPIED JERUSALEM — US President George W. Bush has wrapped up his visit to Israel and the occupied West Bank by a call to end the Israeli "occupation" of Palestinian land Israel captured in the 1967 war and establish a Palestinian state but in a realistic way that takes into account fait accompli settlements and compensations for Palestinian refugees.

"There should be an end to the occupation that began in 1967," Bush said on his return to West Jerusalem from his first trip to the West Bank, where he held talks with Palestinian President Mahmud Abbas, reported Agence France-Presse (AFP).

Giving an assessment of his talks with Israeli and Palestinian leaders over the previous two days, he said it was time for both to make "difficult choices" for peace to become a reality.

Bush reiterated in the keynote statement a vision of territorial compromise he first charted in a policy letter to then Israeli Prime Minister Ariel Sharon in 2004, advocating mutually agreed changes in armistice lines set in 1949 after fighting with Arab armies that accompanied Israel's foundation.

Bush had triggered Arab wrath in 2004 by saying Israel had the right to maintain some parts of the West Bank as it was "unrealistic" to expect Tel Aviv to return now to the armistice lines of 1949.

In what has been dubbed as a "Bushfour Promise," the US president further said Palestinian refugees could not return to land lost in 1948 and then exchanged with Sharon letters cementing his position.

Israeli Prime Minister Olmert had made it clear Israel would retain some parts of the West Bank — which was occupied in the 1967 war, in any future peace deal with the Palestinians, citing Bush's 2004 letters to Sharon.

He considered Ma'aleh Adumim, the second largest settlement in the West Bank and located in eastern Al-Quds (occupied East Jerusalem), to be "an indivisible part of Jerusalem and the State of Israel."

Compensation

Bush also said that as part of efforts to establish the Palestinian state, new financial compensation mechanisms to resolve the issue of the estimated six million Palestinian refugees should be created.

He underlined that Israel must be "a homeland for the Jewish people."

Analysts said recognizing Israel as a Jewish state will be the coup de grace to the Palestinian struggle for a statehood on the historical land usurped by Israeli militants in 1948 as Palestinians, including the refugees and even possibly Israeli Arabs, would end up in a quasi-state in the West Bank and the impoverished Gaza Strip.

Olmert said that the starting point for all negotiations with the Palestinians will be the "recognition of Israel as a state for the Jewish people."

Late on Thursday, Bush flew by helicopter to the West Bank city of Bethlehem to visit the Church of the Nativity, built over the traditional birthplace of Jesus.

On Friday, Bush visited the Yad Vashem Holocaust memorial in West Jerusalem as he wrapped up his three-day landmark visit to Israel and the occupied West Bank.

Wearing a black kippa, a contemplative Bush toured the memorial accompanied by Israeli Prime Minister Ehud Olmert, President Shimon Peres and other senior Israeli officials.

The Bush-Abbas talks were held in the Muqata government compound which was once virtually destroyed during an Israeli siege of then Palestinian emblematic president Yasser Arafat, long boycotted by Bush as an obstacle to peace.

In a break with protocol, pointedly Bush did not stop at Arafat's tomb.

Peace Treaty

Bush said he sees a peace treaty between the Israelis and the Palestinians by year-end.

"I believe it's going to happen, that there will be a signed peace treaty by the time I leave office," he told a news conference with Palestinian President Mahmoud Abbas in Ramallah.

"The establishment of a state of Palestine is long overdue. The Palestinian people deserve it, and it will enhance the stability of the region, and it will contribute to the security of the people of Israel."

And he said a Palestinian state had to be contiguous, but warned: "Security is fundamental. No agreement and no Palestinian state will be born of terror. I reaffirm America's steadfast commitment to Israel's security."

Bush's use of the term "peace treaty" was seen by some as an indication he was not ready to settle for a vaguer "framework agreement" which Israeli and Palestinian officials have said Olmert thinks is all that is feasible before Bush steps down.

The White House announced Bush had appointed US Lieutenant-General William Fraser to monitor steps both sides are supposed to take under the road map as part of a peace process revived at the international summit in Annapolis.

Critics say Bush, who steps down in January 2009, has failed to deploy Washington's full weight in seeking to end the 60-year-old conflict during his first seven years in office.

A summit he hosted at Annapolis in November ended a hiatus in negotiations since 2000.

But many doubt differences can be overcome now, as Bush seeks to burnish his legacy in the Middle East after five years of war in Iraq.

The peace talks have been dogged since their revival last November by continuing Israeli settlement expansion and non-stop raids on the Gaza Strip.

Since peace talks resumed in November, about 100 people, including children and women, have been killed in Israeli strikes on Gaza.

Palestinian lay people are deeply sceptical about Bush's ability to be an even-handed peace broker as Israel's closest ally.