US President George W Bush has said Israel must end occupation of Arab land to enable the creation of a viable Palestinian state, BBC reported.

Speaking in Jerusalem following two days of separate talks with Israeli and Palestinian leaders, Bush urged a solution to the issue of Palestinian refugees that would involve paying them compensation.

It is thought to be Bush's strongest public statement pressing Israel to give up land it seized in the 1967 war.

"There should be an end to the occupation that began in 1967," Bush told reporters in Jerusalem. "The agreement must establish a Palestine as a homeland for the Palestinian people, just as Israel is a homeland for the Jewish people."

Bush also called on Palestinians to confront terrorists and dismantle "terrorist infrastructure." "Security is fundamental," Bush said. "No agreement and no Palestinian state will be born of terror." Bush also appealed for "Arab countries to reach out to Israel."

"Achieving an agreement will require painful political concessions by both sides. I called upon both leaders to make sure their teams negotiate seriously, starting right now. "

The president's comments came after his meeting with Palestinian leaders in the West Bank, where Bush predicted that a peace treaty would be signed by the time he leaves office in 2009.

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