Mr Bush's Middle East visit will include Saudi Arabia and Egypt in an attempt to inject some momentum into the current peace talks between the Israelis and Palestinians.
His tour will not take in the Palestinian territories but he will meet Palestinian Authority President Mahmoud Abbas in Egypt.
"We believe that the surest way to defeat the enemies of hatred is to advance the cause of hope, the cause of freedom, liberty as the great alternative to tyranny and terror," he said at a peace conference in Jerusalem.
Correspondents describe President Bush's eyes welling with emotion as he received a standing ovation and Israeli Prime Minister Ehud Olmert called him as a "great leader, a great friend".
Aftermath of Ashkelon attack
President Bush arrived in Israel earlier on Wednesday - 60 years to the day after Israel declared independence.
But what Israelis celebrate as 60 years of statehood, Palestinians mark as al-Nakba, or "the Catastrophe".
Some 700,000 Palestinians fled their homes or were expelled in 1948.
Many Palestinians also accuse Israel of hurting the innocent and of collective punishment in its attempts to quash Palestinian militants, says the BBC's Katya Adler in Jerusalem.
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