President Bush said Thursday that a Palestinian-Israeli peace treaty could be signed within a year, but that the subsequent creation of a Palestinian state will take longer and require both sides to make "painful political concessions."

Those include, he said, an end to the Israeli "occupation" of Arab land seized in a 1967 war, a recognition by the Palestinians that some disputed territory will remain with Israel, and compromise over the status of Jerusalem, a city which both sides claim as important to their identity and faith.

"Now is the time to make difficult choices," Bush said as he wrapped up two days of meetings with Israeli and Palestinian leaders during his first trip to Israel as president. He vowed to prod both sides toward an agreement during the final months of his presidency.

Bush's summary remarks were delivered in Jerusalem, following an earlier appearance here in which he said he was optimistic that a peace agreement could be signed before he leaves office.

"I am confident that with proper help, the state of Palestine will emerge. And I'm confident when it emerges, it will be a major step toward peace," Bush said in a joint news conference in Ramallah with Palestinian Authority President Mahmoud Abbas. "I am confident that the status quo is unacceptable, Mr. President, and we want to help you."

White House officials announced that Lt. Gen. William M. Fraser III was being appointed to monitor the implementation of the Middle East road map, the document laying out the mutual obligations of the two sides on the path to a peace agreement. Bush introduced Fraser, now assistant to the chairman of the Joint Chiefs of Staff, to Abbas at their meeting this morning.

Bush is the second American president to visit Palestinian-controlled territory -- Bill Clinton visited Gaza and the West Bank in 1998. But since then, concerns about terrorism have broadened, and the Palestinians themselves have fractured. Abbas' more moderate Fatah movement controls the West Bank, while the militant Hamas movement is in effective control of Gaza, the small strip of Palestinian land between southern Israel and the Mediterranean.

Bush and his aides say they realize it will be difficult to translate a peace agreement into creation of a new Palestinian state. He and his advisers have made clear that they do not think it possible to achieve that goal -- which the president set five years ago -- during his presidency.

Instead they are hoping for an agreement on the elements of such a state, including its borders and the status of Jerusalem, with the implementation to come during a later administration. U.S. officials say they do not believe the Palestinians have the necessary security forces and other institutions to function as a state right now.

The more limited goal is still a tall order, as even Bush acknowledged. He and his advisers suggested Wednesday that his very presence here prompted Israeli Prime Minister Ehud Olmert and Abbas to direct their negotiating teams this week to get to work on "core issues," such as the future status of Jerusalem.

The current state of internal Palestinian affairs only complicates the matter, with governance divided between groups with disparate visions. While Abbas greeted Bush with a traditional embrace and kiss, Hamas-led protesters in Gaza on Wednesday burned the American flag and portrayed Bush as a vampire, and militants fired rockets into Israel. Hamas does not recognize Israel's right to exist.

Hamas' control of Gaza creates "a tough situation . . . I don't know if it can be solved in a year or not," Bush said, criticizing the militant movement for winning power in elections with promises of improved health care and education, but delivering "nothing but misery."

Nevertheless, he said he felt a treaty, at least, was within reach, and acknowledged the daily frustrations that the current conflict imposes on both sides. The weather made a planned helicopter trip impossible, so Bush traveled by motorcade from Jerusalem to Ramallah, his car moving swiftly through the Israeli checkpoints that Palestinians spend hours navigating as part of their daily life.

"I can understand why the Palestinians are frustrated driving through checkpoints," Bush said. "I can also understand that until confidence is gained on both sides, why the Israelis would want there to be a sense of security." Ultimately, he said, the new Palestinian state would need contiguous territory, and avoid the "Swiss cheese" of security outposts and settlements that add to the current conflict.

Abbas said he, too, was hopeful of achieving a peace deal by the end of 2008 and said he raised with Bush the question of stopping Israeli settlements in the West Bank, long a point of aggravation for the Palestinians.

"The president understood this issue," he said. The Palestinian leader said he regarded the Hamas takeover in Gaza as a coup. "They have to retreat from this coup," he said, then "we will have another talk."

After meeting with Abbas, Bush visited the Church of the Nativity in Bethlehem, and was due back in Jerusalem for further meetings with Olmert.

After visiting the Church, Bush said, "Some day I hope that as a result of a formation of a Palestinian state there won't be walls and checkpoints, that people will be able to move freely in a democratic state."

On Wednesday, as his first trip to Israel as president began, Bush pressed the idea that both sides needed to take action. He demanded that Israelis shut down unauthorized settler outposts on Palestinian territory, while calling on Palestinian authorities to take steps to halt rocket attacks against Israel. He also issued a sharp warning to Iran.

Even as he insisted he had not come to the region to impose the terms of a peace agreement on Israelis and Palestinians, Bush spent part of the first day of an eight-day trip to the Middle East issuing edicts to the parties -- or, in his words, nudging them toward an accord that he hopes will eventually lead to the creation of a Palestinian state and lasting Arab-Israeli peace.

"The only way to have lasting peace, the only way for an agreement to mean anything, is for the two parties to come together and make the difficult choices," Bush said at a news conference with Prime Minister Olmert. "But we'll help, and we want to help. If it looks like there needs to be a little pressure, Mr. Prime Minister, you know me well enough to know I'll be more than willing to provide it."

Bush is on his first extended tour of a region that has figured prominently in the foreign policy challenges confronting his administration. Accused of years of disengagement from Middle East peacemaking, Bush is making a last-ditch try for an Israeli-Palestinian accord, and also trying to marshal regional support for a policy of confrontation toward Iran.

Bush's visit is being watched closely in the region -- the arrival ceremony in Tel Aviv was shown live on Israeli television -- and security is tight. By 6 p.m., what would normally have been a congested rush hour in Jerusalem resembled light weekend traffic as some residents left work and many shops closed early.

In Bush's talks with Olmert and other Israeli officials, Iran's rising regional influence and nuclear ambitions were key concerns. While Israeli officials have made little secret of their skepticism about a recent U.S. intelligence report concluding that Iran halted its nuclear weapons program in 2003, Olmert professed himself pleased with Bush's assurances that he still took the threat seriously -- though he did not specify the nature of the assurances.

"I certainly am encouraged and reinforced, having heard the position of the United States under the leadership of George Bush, particularly on this subject," said Olmert, who seemed to embarrass Bush a bit with his lavish praise of the president's support and "courage."

Bush offered familiar rhetoric about the threat from Tehran but had sharp new language about the Sunday incident in which Iranian patrol boats harassed U.S. warships in the strategic Strait of Hormuz. "There will be serious consequences if they attack our ships, pure and simple. And my advice to them is, don't do it," Bush said.

From the moment Air Force One touched down in Tel Aviv to the late afternoon news conference at Olmert's residence, Bush displayed his customary optimism about the road ahead. "I view this as an historic moment," he said. "It's a historic opportunity."

But events on the ground Wednesday underscored the great obstacles ahead: Palestinians in the Gaza Strip fired 20 rockets and mortar shells into Israel, causing no major injuries. Three Palestinians in Gaza were killed in Israeli strikes, while the Israeli army launched ground attacks to pursue what it said were gunmen responsible for rocket attacks.

There were scattered protests in Ramallah as well on Thursday. Palestinian Authority police blocked a few hundred demonstrators from approaching the center of town, using batons to beat them back. One was left bleeding from the head. At least five people were arrested. Demonstrators chanted "Bush you are not welcome here," and carried signs calling him "the supporter of the occupation" and the "killer of Iraqi children."

The demonstration was led by five members of the Palestinian parliament, which is currently not meeting because many of its members were arrested by Israeli forces after Palestinian militants in Gaza captured Israeli soldier Gilad Shalit in July 2006.

Meanwhile, Israeli settlers in the West Bank constructed at least two new settlement outposts and expanded others in response to Bush's visit, according to Daniella Weiss, a veteran leader of the settlement movement.

Asked about such outposts at the news conference, Bush said that "they ought to go," but did not indicate what kind of pressure he would bring toward that end. He also said he would press Abbas at a meeting Thursday to curb the rocket attacks, even though they are launched from Gaza, a territory that the Palestinian Authority, headed by Abbas, does not control.

"I believe that he knows it's not in his interests to have people launching rockets from a part of the territory into Israel," Bush said.

Asked later how Bush expected Abbas to control the rockets, national security adviser Stephen J. Hadley acknowledged that Abbas does not control those behind the attacks, but added, "There's obviously communication he has with people of Gaza, and messages that he can send to the people who are doing those rockets."

Olmert said there would be no peace deal without an end to such attacks. "We made it clear to the Palestinians," he said. "They understand that Gaza must be a part of the package, and that as long as there will be terror from Gaza it will be very, very hard to reach any peaceful understanding between us and the Palestinians."