Several days into a visit to Israel and the Palestinian territories, Brazilian President Luiz Inacio Lula da Silva arrived Wednesday in Ramallah, where he expressed his support for Palestinian independence and for the creation of a Palestinian state.

"I dream of an independent and free Palestine living in peace in the Middle East," Lula said during a visit to the West Bank. "I believe the Palestinians and Israelis are going to share the land of their forefathers."

The Brazilian leader has said he would like to play a bigger role in Mideast diplomacy. He is visiting Israel and the Palestinian territories this week.

Lula also visited the grave of late Palestinian leader Yasser Arafat, where he laid a wreath, despite criticism from Israel. There was no immediate Israeli reaction to the visit to Arafat's grave.

On Tuesday, Foreign Minister Avigdor Lieberman said he had boycotted meetings with Lula because the Brazilian leader did not visit the grave of the founder of modern Zionism, Theodor Herzl.

Lula's office said no such visit had ever been planned.

Abbas on Wednesday stood firm on his demand that Israel freeze all settlement construction - including in East Jerusalem.

"While the Palestinians had implemented their obligations under interim agreements, Israel should do the same," he told a news conference in Ramallah with the visiting Brazilian leader.

"The most important in these is freezing settlement activities in all the Palestinian areas, including Jerusalem," he said.

The Palestinians "insist on meeting these obligations so that we can go to indirect negotiations."

Abbas denied the demand for a total construction freeze was a precondition for starting peace talks, because, he said, it was an Israeli obligation under the 2003 "road map" peace plan, sponsored by the United States, United Nations, European Union and Russia.

After much pressure from the U.S., Abbas only 10 days ago had agreed to hold talks - albeit indirect ones - with Prime Minister Benjamin Netanyahu despite the absence of a full settlement freeze that includes also East Jerusalem.

But Israel last week announced the construction of 1,600 homes in the East Jerusalem neighborhood of Ramat Shlomo during the visit of U.S. Vice President Joe Biden, sparking a severe diplomatic row.

Both U.S. Secretary of State Hillary Rodham Clinton and Abbas are now demanding that Israel cancel the Ramat Shlomo construction plan.

"The U.S. today is in disagreement and conflict with Israel. It was never expected to see these two allies in such a disagreement. We do not know if this is the missing magic that was needed to reach an agreement," Silva said.

Silva arrived in Israel on Monday where he met Israeli officials. He traveled to Bethlehem on Tuesday for a tour of the Biblical city and talks with Abbas.

Meeting the Palestinian leader for a second time in Ramallah Wednesday, the two signed five bilateral agreements related to agriculture, education, sports, health and tourism.