The latest moves by the United States to seek an end to the Israeli-Palestinian conflict have been broadly welcomed around the world.
Violence has to end before any deal, Mr Bush reiterated
President George W Bush announced that a long-delayed road map for peace - which envisages a Palestinian state - would be unveiled once there was a Palestinian prime minister "with real authority".
The European Union's foreign policy chief Javier Solana hailed Mr Bush's statement and said: "The road map which is going to be released is the road map we approve."
The so-called Quartet of the US, the EU, Russia and the United Nations have been trying to restart the Middle East peace process.
Among key suggestions made they have made for resolving the crisis are the creation of a Palestinian state by 2005 and an end to Jewish settlements being built on occupied land.
ROAD MAP: KNOWN KEY POINTS
End of Palestinian violence against Israelis
Israel to begin withdrawal from Palestinian areas re-occupied since September 2000
Reform of Palestinian institutions including leadership
Freeze in Jewish settlement building
Proposed peace monitors
"Provisional" Palestinian state in 2003
Peace treaty by 2005
Mr Bush's announcement was also greeted by Jordan, France and Russia.
In another move, Mr Bush's National Security Adviser Condoleezza Rice told an Arabic television network that a Palestinian prime minister could soon be invited to the White House.
Mr Bush has refused to deal with Palestinian leader Yasser Arafat and has been among world leaders calling for sweeping reforms of the Palestinian Authority.
Last week Mr Arafat nominated his long-time deputy Mahmoud Abbas - also known as Abu Mazen - to be prime minister. He has not yet accepted.
Israel - which accuses Mr Arafat of links to terrorism - said it agreed with Mr Bush's approach.
A foreign ministry spokesman said: "We are of the conviction that once there is a Palestinian prime minister with real powers who will begin fighting to stop terror then Israel will be willing to begin discussing a solution."
The BBC's James Reynolds in Jerusalem says the private view of Israeli officials will be one of more concern with Mr Bush leaning to the European view which encourages more pressure on Israel.
'Good faith needed'
But the pace of progress remained too slow for senior Palestinian negotiator Saeb Erekat.
He said that all the steps had been taken to appoint a prime minister, and that he had expected Mr Bush to announce the immediate publication of the full peace plan.
Mr Bush urged all sides to act "in good faith" towards the setting up of a Palestinian state.
He said any Palestinian state must be "a reformed and peaceful and democratic state that abandons forever the use of terror", which has been demanded by Israel.
But he made demands of Israel as well: "As progress is made toward peace, settlement activity in the occupied territories must end," he said.
Soon after Mr Bush spoke, UK Prime Minister Tony Blair said - in what appeared to be a co-ordinated announcement - that the plan could lead to a viable Palestinian state soon.
Mr Blair has worked hard to push for Palestinian reform at a time when the US - preoccupied with the Iraq crisis - has not been taking the lead.
Mr Blair said: "We are right to focus on Saddam Hussein... but we must put equal focus on the people whose lives are being devastated by the lack of progress in the Middle East peace process."
Correspondents say, however, that the Iraq crisis played a part in the timing of the announcement with the US and UK keen to shore up support from Arab and other allies.