U.S. Secretary of State Condoleezza Rice called on Israelis to take bold steps for peace following talks with Israeli leaders in Jerusalem on Sunday. VOA's Jim Teeple has details from our Jerusalem bureau.

This is Secretary Rice's third trip to Israel and the Palestinian territories in the past six weeks, and her eighth trip to the region this year. Speaking to a gathering of the Saban Forum policy institute in Jerusalem she warned that extremism is gaining in the Middle East, making a two-state solution between Israelis and Palestinians imperative.

"If the Palestinians are losing hope, especially among the young, we have a great danger before us," said Condoleezza Rice. "The prolonged experience of deprivation and humiliation can radicalize even normal people. We have all heard the stories and read the reports, but what is different now is the context. My fear is that if Palestinian reformers can not deliver on the hope of an independent state then the moderate center could collapse forever. The next generation of Palestinians could become lost souls of unbridled extremism."

Speaking at the same event, Israeli Prime Minister Ehud Olmert said he believed real progress can be made toward the establishment of a Palestinian state in the remaining year of the Bush administration.

However earlier, Mr. Olmert's negotiator with the Palestinians, Foreign Minister Tzipi Livni, said while preliminary talks between the Israelis and the Palestinians were taking place in a good atmosphere, there are problems with trying to reach agreement on a set of principles before a U.S. -sponsored Mideast peace summit planned for later this month.

"Basically we are just at the beginning of the process and the dialogue, and there is a need to understand that while we need to find common ground with pragmatic leaders, they need to understand that the implementation of future understandings will be implemented only according to the phases of the road map," said Tzipi Livni. "The meaning is security to Israel first, and then the establishment of a Palestinian state."

Under the terms of the internationally backed road map peace plan, Palestinians are to stop attacks against Israel while Israelis are to halt settlement building in the West Bank.

Rice meets with Palestinian President Mahmoud Abbas on Monday, but he and his negotiators say her diplomatic efforts will not be credible until some sort of deadline is set for final status talks aimed at the creation of a Palestinian state - something Israel says it is not ready to do at this time.

Israel is negotiating only with President Abbas who controls the West Bank. Hamas leaders who control the Gaza Strip refuse to recognize Israel and have condemned the planned peace conference.

Also speaking at the Saban Forum was former British Prime Minister Tony Blair who said a solution to the Israeli-Palestinian conflict could be written out on two sheets of paper. However Mr. Blair, who is now an official Mideast peace envoy, said while the solution is clear, the problem of mistrust between Israelis and Palestinians remains unresolved.