Israeli President Shimon Peres is the last remaining founding father of the Israeli state. Last week he spoke with Newsweek-Washington Post's Lally Weymouth. Excerpts:

Q. Is there a realistic chance of peace with the Palestinians?

A. I think we have to follow a two-track approach: one political, the other economic. I think the economic locomotive has achieved much more than the military since the Second World War. And I think that we have unbelievable economic proposals as to how to make accommodations between us and our neighbors. In the political negotiations, the gaps are not very great, but they are highly emotional. It will be extremely difficult to put them on paper because each party looks to its own audience and will be very careful not to appear as losers. We cannot compare, for example, the issue of Jerusalem with the issue of borders. If we can agree on borders, let's agree. If we can agree on refugees, let's agree. It will take time.

Do you think that you should be focusing on improving the day-to-day lives of the Palestinian people rather than trying to achieve a political agreement?

Both.

You seem to be focusing on the economic cooperation between states.

The Middle East [has] two problems. One is the struggle with the Iranians who want to control the Middle East religiously and the Arab states who are not happy with that. It's not only us.

The second is between a generation that doesn't want to enter the modern age [and] the generation that understands we have to. The generation that refuses to enter the modern age is also employing terror. They think they can stop the march of history, which is nonsense.

Now you are known for your dedication to the search for peace. But when I first interviewed you in 1981, you were still hawkish.

Half of Israel was under the impression that the Arabs would not make peace with us. As long as they thought they could overpower us, they wouldn't make peace. So practically all of us were hawks. The minute that Israel showed its muscles and proved that you cannot overcome her [was] the first time we saw some chances for peace. . . . It's not that I changed my character.

And also there was luck. Personalities play an important role. [Egyptian President] Anwar Sadat was luck. If [the late ] Gamal Abdul Nasser had remained in Egypt, I don't think he would have made peace.

For years you have been trying to make contact with important Arabs in order to enhance the prospects of peace.

Yes, all the time. In 60 years, we have had to face seven wars, outgunned, outmanned, outnumbered. And we won them all. But we never gave up the search for peace.

Is your country going to have to send its military forces into Gaza in order to protect its citizens from the rockets that keep falling?

No, I think the ones who will change the situation in Gaza will be the people of Gaza.

They are getting tired of Hamas. They say, 'What the hell are you doing to us?' They are looking for a cease-fire.

Some argue that Hamas is looking for a cease-fire so that it can rearm.

They are rearming themselves without the cease-fire.

So you think the people in Gaza are getting sick of Hamas.

Eventually, yes. Because Hamas is no solution.

Do you worry for your country on the eve of the 60th anniversary when there is such a scandal around your prime minister?

The prime minister is innocent until shown otherwise. But, what shall I say? Better a democracy with scandals than an authoritarian system without scandals.

What do you believe should be done about Iran's nuclear program?

We never said we were going to wipe anybody off the map, but they have.

It's not a problem of nuclear capability but of political intention.

. . . I think today [Iranian President Mahmoud] Ahmadinejad is becoming more and more a problem for the world, not only for Israel. . . . Sooner or later the international community will take the necessary measures, which don't have to be military.

You told me once that you've known every U.S. president since Harry Truman.

Yes.

So, how does this president impress you?

I think Bush did something very courageous, and that was to topple Saddam Hussein. Imagine today that we would have in the Middle East both Ahmadinejad and Saddam Hussein. Bush [made] a decision and should be given credit for it. The problem with the Europeans is, they are right but they are always late. And here to be late is to be wrong. To be right means to be on time. Would they have been right on Hitler, the whole [of] Europe would look different.

What about President Clinton?

Clinton was a friend. Bush's father was a friend, and President Ronald Reagan was a friend.

The title of your conference that President Bush is attending here . . . is "Facing Tomorrow." And that's really what you're about?

Yes. I think the world has changed, the Jewish world has changed, Israel has changed. I think that relations with the Jewish people shouldn't be based so much on finance but rather on intelligence and intellect, arts and spirit. . . . We want to become a contributing nation. . . . We want to be citizens of the world and not just followers of our faith.