US President George W Bush has said he is "very hopeful" that Israeli and Palestinian peace talks can succeed.
After talks with Israeli Prime Minister Ehud Olmert in Jerusalem, Mr Bush said he was prepared to exert pressure so that a deal could be reached this year.
Mr Bush is using his first trip as president to Israel and the West Bank to boost peace talks begun last year.
Mr Olmert said he was committed to dealing with the core issues of the conflict with the Palestinians.
"It's a historic opportunity to work for peace," Mr Bush said.
"If there needs to be a little pressure then you know I will provide it."
Within hours of Mr Bush's arrival in Israel, the Palestinians reported that Israeli forces had killed three people in Gaza.
The Palestinians accused Israel of stepping up such attacks during the run-up to Mr Bush's visit.
The Israeli raids followed rockets launched from inside Gaza into Israel.
Mr Olmert - standing alongside Mr Bush - said Israel would not tolerate such rocket attacks.
"There will be no peace until terror is stopped," he said.
But he also re-iterated his commitment to peace, saying both sides were "seriously trying to move forward in order to realise the vision of a two-state solution".
Mr Olmert's spokesman told the BBC that negotiations on the core issues dividing Israel and the Palestinians would begin as early as next week.
"The idea is to try to find solutions, to try to find common ground hopefully before the end of this year," the spokesman, Mark Regev, said.
Palestinian leader Mahmoud Abbas and Mr Olmert vowed at a US summit last year to try to achieve a two-state solution by the end of 2008.
On Tuesday, the two leaders said negotiations could begin on the core issues separating them such as the borders of a future Palestinian state, Palestinian refugees, Israeli settlements and the status of Jerusalem.
The issue of settlements is expected to top the agenda when Mr Abbas meets Mr Bush in the West Bank on Thursday.
It also loomed large in Mr Olmert's and Mr Bush's news conference.
Mr Bush said outposts - small unofficial settlements - ought to go. But he made no direct reference to the issue of settlements in general.
Mr Olmert said Israel would abide by its commitment not to build any new settlements in Palestinian territories.
But he also made it clear that Israel did not consider East Jerusalem as occupied, even though most other nations, and the Palestinians, do.
Mr Bush also took the opportunity to warn Iran of "serious consequences" if it attacked US ships in the Gulf.
He was speaking after the US reported that five Iranian speedboats had challenged and briefly threatened three US warships in the Strait of Hormuz at the weekend.
The US said its vessels were about to open fire when the Iranian boats withdrew.
Iran at first described the encounter as a routine occurrence and dismissed video of the incident published by the Americans as fake.