The United States was set Wednesday for three-way peace talks with top Israeli and Palestinian negotiators amid pessimism President George W. Bush can bag a comprehensive Middle East peace deal before he leaves office in January.

US Secretary of State Condoleezza Rice will meet Israeli Foreign Minister Tzipi Livni separately Wednesday before holding trilateral talks later in the day with chief Palestinian negotiator Ahmed Qorei and Livni at the State Department.

Qorei and Livni have been meeting at least once a week for several months since the Israelis and Palestinians committed to forging a comprehensive deal by the end of 2008 during a conference Bush hosted in Annapolis, Maryland in November.

"The objective in bringing them together in a trilateral format is to help them to bridge differences, perhaps highlight areas of convergence or agreement where it may not be apparent to them," State Department spokesman Sean McCormack told reporters ahead of the talks.

"The focus is on the substance," he said. "In trying to move the process forward, the two parties are intensely engaged with one another and all of the core issues in trying to bridge differences."

Rice herself acknowledged difficulty in achieving a peace deal by the end of the year as targeted under the US-brokered talks, but noted growing recognition that the Palestinian question should be resolved swiftly for regional security.

"The Middle East is not going to get better without the creation of a Palestinian state to live side-by-side with Israel in peace, security and democracy," she said on Tuesday.

"It simply isn't going to get better. And so the question is, if not now, when?" she said amid growing pessimism about a breakthrough before Bush leaves the White House in January 2009.

Israeli Prime Minister Ehud Olmert threw cold water this week on hopes of a quick deal when he said Monday that he did not think the two sides could agree on the crucial issue of Jerusalem this year.

Qorei also highlighted the importance of the Jerusalem question, saying there could be no deal without its resolution.

"There's no (Palestinian) state without Jerusalem and no agreement without Jerusalem," he told reporters Tuesday.

Rice, who the White House said will be travelling to the Middle East "pretty soon," is reportedly anxious to get the two sides to agree on a document of understanding on other key issues, such as borders for a Palestinian state and the right of return of Palestinian refugees to Israel.

Such a document is in the cards ahead of the United Nations General Assembly session in September, some reports suggested.

When asked to comment, McCormack said, "I like all of this talk about memorializing and documenting and what format it will take.

"I tell you the Secretary is focused on the substance and helping these two parties come to an agreement," he said.

Meanwhile, tensions ran high in the occupied West Bank amid a 3,000 strong funeral Wednesday for a Palestinian boy shot dead by Israeli forces during a protest against Israel's separation barrier.

Olmert will also make a special announcement on Wednesday, his office said in a statement, amid speculation he may be preparing to stand down.

Israeli military radio, citing political sources, said Olmert, 62, was preparing to announce that he would not run in a leadership election for his Kadima party scheduled for September.