Rice made the remarks after meeting with high-ranking officials from both sides during her third visit to the region in six weeks, aiming at boosting peace talks prior to the upcoming peace parley in Annapolis, Maryland later this year.

ABBAS SEES "REAL POSSIBILITY" FOR PEACE DEAL

During a news conference with the Palestinian National Authority (PNA) Chairman Mahmoud Abbas in Ramallah, the US top diplomat said that she was "tremendously impressed by the seriousness" Israeli and Palestinian leaders have shown in moving toward renewed peace talks.

Rice met separately yesterday with Abbas, caretaker Prime Minister Salam Fayyad and Palestinian negotiator Ahmed Qurei. On Sunday, she held talks with Israeli leaders and, along with Olmert, addressed the Saban Forum participated by senior leaders, former peace negotiators and scholars.

For his part, Abbas said there is a real possibility for achieving a peace deal with Israel before US President George W. Bush steps down in January 2009, but also called on Israel to start meeting some of its short-term peace obligations, such as a freeze on settlement construction.

Israeli Prime Minister Ehud Olmert pledged on Sunday at the Saban Forum that Israel will not avoid at Annapolis summit all the core issues of the Israeli-Palestinian conflict, including that of Jerusalem, borders and the Palestinian refugees.

He reiterated that serious negotiations on Palestinian statehood would take place only after Annapolis.

"Annapolis will not be an arena for negotiations, but it will certainly be a starting point for the real effort to realize the two-state vision," he added.

Israel has refused to discuss the fundamental questions in the past.

Meanwhile, the prime minister is reportedly considering the release of as many as 2,000 Palestinian prisoners as a gesture of good will to Abbas. But no decision has yet been made on the final number or timing of the release.

CURRENT TALKS WITNESS DIFFERENCES AND DISPUTES

While encouraging signs emerged in the negotiations, an Israeli-Palestinian draft for future peace talks is still stuck by disputes on key issues.

The Palestinians want the outline to mention the principles for solving each of the disputes and insist on setting a deadline for peace talks in the draft.

Moreover, Abbas called on Israel to begin immediately meeting its obligations under the first stage of the Road Map peace plan, which requires Israel to freeze settlement construction, remove illegal outposts and ease Palestinian movements.

Israel, however, insists that any future agreement be put into effect only after the Palestinians meet their obligations such as reducing violence according to the Road Map.

The first phase of the Road Map calls on the Palestinians to crack down on militants while demands that Israel halt Jewish settlement activity and uproot illegal outposts.

Israeli Foreign Minister Tzipi Livni, who heads Israel's negotiating team preparing for summit, told Rice in a meeting on Sunday that Israel's security must be assured before a Palestinian state can be created.

"The problem is not over making a joint declaration, but what its content would be," she added.

Israel has said that the Palestinians have not done enough to meet their security obligations, and that the evacuation of outposts does not have the same degree of urgency as maintaining security and containing terrorism.

In turn, Palestinian negotiator Saeb Erekat claimed that the Palestinians have made progress in carrying out their obligations, while Israel has failed to abide by its commitments.