President Clinton admitted in a live broadcast on Israeli television that the Wye River peace accord had run into problems and warned that both sides needed a transformation of attitudes.

"The peace process will succeed if it comes with a recognition that the fulfilment of one side's aspirations must come with and not at the expense of the fulfilment of the other side's dreams," he said.

BBC Middle East Correspondent Jeremy Bowen: Faith in Clinton's ability to deliver peace may be misplaced

"It will succeed when we understand it is not just about mutual obligations but mutual interests, mutual recognition and mutual respect."

He argued that if Israel was to achieve security then there was no alternative but to work with the Palestinians.

The visit has drawn criticism in Israel

"There is no security without both having security and no peace without both having peace," he said.

Receiving warm applause throughout his address from an audience of students in Jerusalem, he also said Palestinian leaders must work harder to comply with their land-for-security deal with Israel and avoid "unilateral actions", a reference to declaring a state.

Netanyahu warning

Earlier Israeli Prime Minister Binyamin Netanyahu had warned the Palestinian Authority it must "officially and unequivocally" renounce their intention to declare a Palestinian state in May 1999.

President Bill Clinton appeals to Israelis to pursue peace

Speaking at a joint news conference after meeting Mr Clinton, he reiterated his commitment to peace, but said Israel would not hand over "another inch of territory unless and until such an unambiguous correction is made".

For his part, Mr Clinton promised he would ask Congress to approve a $1.2bn aid package to help Israel meet its security needs.

BBC Middle East Correspondent Paul Adams said three hours of talks this morning did not result in any visible softening in Mr Netanyahu's uncompromising posture.

Continuing tension

Mr Clinton's visit to Israel comes as further violence broke out in the West Bank, with a Jewish settler stabbed by a Palestinian woman in an attack apparently timed to coincide with the presidential visit.

Israeli Prime Minister Netanyahu: Condemned alleged Palestinian violations

On Monday, Mr Clinton will become the first president to visit the Gaza Strip where he will address a meeting of the Palestine National Council or parliament.

Delegates will once more confirm their support for changes to the PLO's charter, removing clauses calling for Israel's destruction.

The two sides disagree over how this should happen with Israel insisting on a vote, but the US Secretary of State, Madeline Albright, now says procedures are in place which should satisfy Mr Netanyahu.

The trip to Gaza has drawn criticism in Israel as amounting to a symbolic endorsement of Palestinian aspirations for statehood.

Mr Clinton's trip was intended to solidify the land-for-security accord he brokered in October.

Instead, it has turned into a rescue mission for the deal which Mr Netanyahu put on hold last week over what he alleges are Palestinian violations of the peace deal.