Tony Blair says his talks with Israeli and Palestinian leaders have achieved his goal of promoting a conference on reform in the Palestinian Authority.
The Palestinian leader hailed Blair's "deep commitment"
The UK prime minister said the London conference would be an important opportunity to revive peace talks.
The summit, which Israel will not attend, aims to assist the Palestinians with democratic and economic reforms.
Mr Blair also briefly visited the tomb of Yasser Arafat in Ramallah - the first world leader to do so.
He nodded briefly towards the tomb, in what Palestinian officials said was a compromise gesture agreed at the last minute.
Palestinians said Mr Blair's delegation had ruled out laying a wreath - something Foreign Secretary Jack Straw did on 25 November.
The BBC's Paul Reynolds says the London conference will be a limited measure to shore up the leadership of Mahmoud Abbas, also known as Abu Mazen, who is expected to win the Palestinian presidential election on 9 January.
At a news conference following talks with Mr Blair, Mr Abbas said the British prime minister was "in a unique position to help us progress in our peaceful pursuit".
He added: "Your endeavour to hold a conference in London is another example of your deep commitment to this purpose."
In an interview with the BBC's political editor Andrew Marr, Mr Blair said getting progress between Israelis and Palestinians would be "tough, but at least we have got the first step".
"There is, in principle, agreement as to where they want to get to, which is a two-state solution with a viable Palestinian state and a secure Israel," he said.
Mr Blair acknowledged some people believed he was too close to the Israelis, but said the Israelis were entitled to expect Palestinians to give up terrorism.
He argued Israeli Prime Minister Ariel Sharon was committed to the internationally-agreed roadmap peace plan and said his bid to disengage from Gaza had to be part of the peace process, not the end of it.
Earlier, Mr Sharon again said he had not seen "the slightest step" the Palestinians were working to end terror attacks - though he acknowledged Palestinian leaders were in the middle of an election campaign that could be hampering their efforts.
Meanwhile, Israeli troops say they killed a Palestinian fighter in a raid on a Gaza refugee camp.
Tanks and troops moved into the Khan Younis camp in Gaza, in what the Israeli military said was an attempt to stop rocket attacks on Jewish settlements.
Eleven Palestinians died and at least 40 were hurt in an incursion into the same area over the weekend.
Also on Wednesday, an Israeli working on the West Bank barrier that Israel is constructing in the West Bank was killed by Palestinian gunfire to the west of the flashpoint city of Hebron.
Police also said that an Israeli woman stabbed to death at a co-operative farm near Jerusalem on Tuesday night was the victim of a Palestinian attack.