The United States hopes it can translate mounting concerns about Iran’s strength into progress in peace negotiations between Israel and the Palestinians, officials and observers say.

Publicly, State Department officials strain to downplay expectations for the conference expected before year’s end in scenic Annapolis, Maryland, near Washington. Privately, they are aglow with an optimism that clashes head-on with the pessimism many Arab leaders have voiced.

‘We have made progress,’ one senior department official said privately in mid-October, following lengthy talks by Secretary of State Condoleezza Rice in Ramallah and Jerusalem. The talks did not yield any visible steps forward between the Israelis and Palestinians.

But no political party now rejects the creation of a Palestinian state, which was not the case at the last Israeli-Palestinian peace negotiations, according to the same official who spoke on condition of anonymity.

While recognizing the weak positions of Israeli Prime Minister Ehud Olmert, who leads a fragile coalition; and that of Palestinian leader Mahmud Abbas, who has to contend with the Hamas uprising in Gaza, US officials say in private that the conditions oddly enough may be ripe for a deal.

Israeli leaders, who unlike their Palestinian counterparts have never taken part in negotiations of this kind, feel a fairly high comfort level with a Bush administration accused in the Arab world of an outrageously pro-Israeli policy line, particularly during the 2006 war in Lebanon.

Unsure where they will stand with the next US president, the Israeli leaders, who are as fearful of Iran’s influence over Shia communities in the region as they are of Gulf Arab regimes, could be tempted to jump at a deal before the end of George W. Bush’s term as president in January 2009.

Meanwhile moderate Arab leaders such as Jordan’s King Abdallah II, Saudi King Abdallah and Egyptian President Hosni Mubarak, facing rising Islamist opposition on their own turf, need to show their people that more can be won from negotiations than from terror attacks, US officials say.

It is an opinion shared by Robert Zelnik, an expert at the Foreign Policy Research Institude (FPRI), who said Iran could end up helping to end the Israeli Palestinian conflict.

‘So deep is this concern that once implacable positions have become pliant, and uncooperative parties stand ready to compromise,’  said Zelnick, citing a recent study by several experts and regional political officials.

Europe has quietly helped Rice in her efforts, hoping that the Iran factor ‘indeed should encourage parties to find something’ on which to strike a deal, a European diplomatic source said.

German Foreign Minister Frank-Walter Steinmeier is also in the region and ‘one of the goals is to convince the Saudis to participate in the Annapolis meeting,’ another European diplomat said privately.