By Kim Ghattas
BBC News, Washington
Fighting in Lebanon has increased fears about the region's instability
President George W Bush is heading to a region that is sinking deeper into turmoil, and where the US influence is at a low ebb.
After five years of violence in Iraq and almost a year of Hamas control over Gaza, the latest blow to US policy has come in Beirut, with the violent challenge by Hezbollah to Lebanon's Western-backed government.
The Bush administration's plans for democracy in the Middle East seem to lie in tatters with moderates on the retreat, and the power of Syria and Iran on the rise.
On Tuesday, Israeli Prime Minister Ehud Olmert announced that progress was being made in talks with the Palestinians, but hopes are thin for an agreement before the end of the year.
The US Secretary of State, Condoleezza Rice, who is travelling with the president and has been going to Jerusalem and Ramallah almost every month for the past two years, said that a deal within the next eight months "might be improbable but it's not impossible".
President Bush's visit is anchored around celebrations for the 60th anniversary of Israel's creation, which the Palestinians call al-Nakba, or the Catastrophe.
The president and the first Lady will spend three days in Israel but will not visit the Palestinian territories.
Mr Bush went to Ramallah during his first trip to the region in January, and is expected to meet the Palestinian Authority's President Mahmoud Abbas during the last stop of his trip, in the Egyptian resort of Sharm el-Sheikh.
Asked if the president would acknowledge al-Nakba and whether it was appropriate to celebrate Israel's founding at this time, Ms Rice said Israel was an important friend and ally.
Speaking to reporters on her way to Jerusalem earlier this month, she said: "Why would you not celebrate the 60th anniversary... of this once fragile state, founded on the horrors of one of the really most awful moments of modern human history, and that has grown into a vibrant economy and democracy?" she added.
"Celebrating that does not mean that you don't recognise that there were consequences for the people of the region and that we're still trying to deal with those consequences," she said.
She added that she hoped that one day a US president would be celebrating the 60th anniversary of a Palestinian democracy that is a good friend of the US.
Ms Rice said that, in private, the Palestinians had not raised concerns about President Bush's visit to Israel.
But on Tuesday, the Palestinian Authority's Prime Minister Salam Fayyad said the festivities were out of place.
This is Mr Bush's second trip to the region this year
In a speech he said was directed at Israel, he asked: "How can you celebrate while the Palestinian people are crying out in pain? How can you feel freedom when you seize the land and the liberty of another people?"
Although Mr Olmert spoke of progress in talks with the Palestinians, Mr Fayyad was much less positive.
A three-way summit with the Israelis and the Palestinians is not planned during this trip, a sign perhaps of the low expectations of any breakthrough during the visit.
"This did not seem the time for a big high-level three-way event with the president and the prime minister and President Abbas," said National Security Advisor Stephen Hadley last week.
"It just doesn't feel right as the best way to advance the negotiations," he said.
Before leaving on his second and probably last trip to the Middle East, President Bush told BBC Arabic television that he was still hopeful that an agreement could be reached that would define the borders of a Palestinian state, and said "we're going to work hard for that end".
But no-one is talking about a grand peace agreement any more.
In an interview with Yahoo news and Politico.com, President Bush also said that "the big challenge in the 21st Century is to advance freedom in the Middle East, for our security".
"Americans at home ought to care for the advance of free societies throughout the Middle East. After all, this is the centre of anti-Americanism and hatred," he added.
Some observers argue that the Bush administration is doing too little, too late in the Middle East, and that there has rarely been a less auspicious moment to push for peace.
At the same time, they say, Bush's policy towards the Middle East over the past few years has been active but misguided - from the Iraq invasion to the strategy of sidelining Hamas and talking to only half of the Palestinian people.
Jon Alterman, director of the Middle East programme at the Centre for Strategic and International Studies in Washington, said the crisis in Lebanon was the "last flickering flame" of the Bush administration's project to bring democracy to the region.
He said that while Washington had taken an active role on several issues, things were worse off now than they were even two years ago.
Mr Alterman also pointed to the changed relationship with the oil-producing Gulf countries, where President Bush is heading to Saudi Arabia to mark 75 years of US-Saudi ties.
"I think the Gulf countries are less willing to do hard things just because they help the US," he said.
"There's a sense that the US remains important, that it remains a country that they need to engage with, but the sense that the United States is a country that they will take a bullet for, I don't think that sentiment is there," said Mr Alterman.
"I don't think that Saudi Arabia is there [for the US the way it used to] and I have a hard time imagining, given what has happened over the last decade, that the Saudis are going to be there for the US in the same way ever again."
Increased oil prices are hitting US consumers hard
The president is expected to ask King Abdullah to increase Opec oil production to help lower prices, which have reached a high of $126 a barrel.
But the last time Mr Bush made the request, in January, he was rebuffed.
Gulf countries are increasingly looking to Asia as a growing and lucrative market.
Ahead of Mr Bush's trip, a group of Democratic Senators on Tuesday threatened to block a multi-million dollar US arms deal with Saudi Arabia, unless the kingdom increases oil production and helps cut soaring gasoline prices.
"We are saying to the Saudis that, if you don't help us, why should we be helping you?" New York Democratic Senator Chuck Schumer said.
"We are saying that we need real relief, and we need it quickly. You need our arms, but we need you to co-operate and not strangle American consumers."
But as Saudi Arabia, a dominantly Sunni country, watches nervously as events unfold in Lebanon with Shia Iran apparently gaining more power there, the kingdom may well look to the US for more help to counter Iran.