Occupation of Palestinian land must end, Bush tells Israel

President George Bush last night called for Israel to end what he unequivocally called its "occupation" of territory seized in 1967 and proposed "compensation" as a means of solving the issue of Palestinian refugees.

As his first presidential three day visit to Israel and the West Bank neared its end, the US President went his furthest yet in publicly promoting what he had bullishly predicted would be a "signed peace treaty" between Israel and the Palestinian President Mahmoud Abbas "by the time I leave in office" in January 2009.

Mr Bush's – for him – unusual choice of the word occupation, a term still widely disliked on the Israeli right, came after a day on which he had sought after a meeting here with Mr Abbas to show he understood Palestinians' frustration at hundreds of Israeli checkpoints and closures in the occupied West Bank. He also warned Israel of its obligations to negotiate a "contiguous" independent Palestinian state, adding: "Swiss cheese isn't going to work when it comes to the outline of a state."

Mr Bush did not deviate from his two-year-old formal stance of backing Israel's rejection of the longstanding demand of Palestinians for the "right of return" to Israel of the families of refugees who fled or were driven from their homes in the Arab-Jewish war of 1948.

But while his reference to "international mechanisms, including compensation" was closely in line with proposals brokered by his predecessor Bill Clinton at the abortive Camp David negotiations in 2000, it is the first time he has raised the idea publicly.

Despite his use of stronger language than before to confront Israel, as well as the Palestinians, with the need make what he called "tough concessions" in the talks he is seeking to push over the next year, Mr Bush repeated his 2004 pledge to the then prime minister Ariel Sharon that the US expected Israel to keep the biggest Jewish West Bank settlement blocs in any "final status" deal with the Palestinians. He made it clear such a deal would require "mutually agreed adjustments" to the 1967 borders "to reflect current realities."

Israeli officials indicated that they hoped President Bush's trip through the Gulf after he leaves Israel will encourage Arab states, including Saudi Arabia, to reverse what they see as their failure to give whole-hearted backing for Mr Abbas and a negotiating process which excludes Hamas, now in control of Gaza.

It also remains to be seen whether Mr Bush's statement will defect muted internal criticism of Mr Abbas and his Prime Minister Salam Fayyad in Mr Abbas's Fatah party. A prominent Fatah figure, Kadoura Fares, said there "were debates" in Fatah over negotiations in a "closed political horizon while Israelis build settlements and the division between Hamas and Fatah continues".

Mr Bush also appeared to modify his 2004 commitment to a peace deal being based on earlier UN resolutions calling for an end to occupation, a cornerstone of the Palestinian negotiating approach.

The US President has named Lt-GenWilliam Fraser, assistant to the chairman of the joint chiefs of staff, to monitor implementation by both sides of obligations under the long-moribund 2003 internationally agreed "road map". This required Israel to freeze all "settlement activity", which Mr Olmert has insisted does not cover East Jerusalem or the existing settlements. It also requires the Palestinians to act against "terrorism".