The Bush administration says Israeli and Palestinian negotiators are making significant progress toward an independent Palestinian state. VOA White House Correspondent Scott Stearns reports from Egypt where officials say U.S. President George Bush may return to the Middle East if it will help the process.

U.S. National Security Adviser Steve Hadley says President Bush is encouraged by progress in Israeli-Palestinian talks.

"What we have now is negotiations ongoing, extremely intensive at several levels between Israelis and Palestinians and tangible progress in dealing with the hard issues that are required before an agreement is reached,” he said. “Is it done yet? No. Are we making progress? The president's view is, 'yes' we are making progress."

Hadley would not say what progress has been made on which issues, because he says both sides would prefer to keep that progress private until a final deal is reached.

Speaking to reporters in Egypt before the president's speech at a global economic forum, Hadley says Mr. Bush will return to the region if there is something he can do to help advance the peace process.

In his speech, President Bush says he believes Palestinians will build a thriving democracy.

"We must stand with the Palestinian people, who have suffered for decades and earned the right to a homeland of their own,” he said. “I strongly support a two-state solution - a democratic Palestine based on law and justice that will live in peace and security alongside a democratic Israel."

During this five-day trip, the president has been criticized by some Arab allies for being to close to Israel. Saudi Foreign Minister Saud al-Faisal said Israel's right to exist must be balanced with the legitimate historical and political rights of Palestinians.

State-run media in Egypt said Mr. Bush aims to do nothing but appease Israel.

The president says America will help Palestinians achieve a dream they share with Israelis.

"A peace agreement is in the Palestinians' interest, it is in Israel's interest, it is in Arab states' interest, and it is in the world's interest,” he said. “And I firmly believe that with leadership and courage, we can reach that peace agreement this year."

Mr. Bush says it is a demanding task that requires action on all sides.

"Palestinians must fight terror and continue to build the institutions of a free and peaceful society,” he said. “Israel must make tough sacrifices for peace and ease restrictions on Palestinians. Arab states, especially oil-rich nations, must seize this opportunity to invest aggressively in the Palestinian people and to move past their old resentments against Israel. And all nations in the region must stand together in confronting Hamas, which is attempting to undermine efforts at peace with continued acts of terror and violence."

One of the biggest obstacles to a peace deal is that Palestinians are divided between Hamas-controlled Gaza and the Fatah-led West Bank of Palestinian President Mahmoud Abbas.

Wrapping up his five-day trip to the region, Mr. Bush says America is deeply concerned about political prisoners and democratic activists as well as newspapers and civil society organizations that have been shut down.

"The time has come for nations across the Middle East to abandon these practices, and treat their people with dignity and the respect they deserve,” he said. “I call on all nations to release their prisoners of conscience, open up their political debate, and trust their people to chart their future."

President Bush says too often in the Middle East, politics has consisted of one leader in power and the opposition in jail.