U.S. President George Bush yesterday demanded that Israel halt all settlement construction, specifically mentioning Jerusalem in this context, during his first meeting with Mahmoud Abbas since the latter's election as chairman of the Palestinian Authority.

Bush also gave American backing to a key Palestinian negotiating demand, declaring at a press conference following their White House meeting that any border deviations from the 1949 armistice lines would have to be by mutual Israeli-Palestinian consent. And he made only vague, general statements about the need to fight terror.

Bush, who referred to Abbas consistently as "Mr. President," did not give the Palestinian leader any written pledges, but his speech at the press conference was a clear statement of American policy regarding a final-status agreement - and it delighted his Palestinian guests. Officials in Abbas's entourage expressed particular pleasure over Bush's statements on the settlements and his explicit mention of Jerusalem as one of the issues on which Israel must not prejudice final-status negotiations. They also said the speech had opened the door for a meeting between Abbas and Prime Minister Ariel Sharon in the next two weeks.

While Bush's call for a halt to settlement expansion was not new, his explicit mention of Jerusalem in this context was, and reflects American concern over Israeli building plans in Ma'aleh Adumim and the greater Jerusalem area.

With regard to borders, Bush said explicitly that "any final status agreement must be reached between the two parties, and changes to the 1949 armistice lines must be mutually agreed to." This statement was aimed at assuaging Palestinian concern over his letter to Sharon last year, in which he stated that "in light of new realities on the ground, including already existing major Israeli population centers, it is unrealistic to expect that the outcome of final status negotiations will be a full and complete return to the armistice lines of 1949."

The president then added: "A viable two-state solution must ensure contiguity of the West Bank, and a state of scattered territories will not work. There must also be meaningful linkages between the West Bank and Gaza. This is the position of the United States today, it will be the position of the United States at the time of final status negotiations."

Israel, Bush continued, must "work with the Palestinian leadership to improve the daily lives of Palestinians, especially their humanitarian situation. Israel should not undertake any activity that contravenes road map obligations or prejudices final status negotiations with regard to Gaza, the West Bank and Jerusalem."

"Therefore, Israel must remove unauthorized outposts and stop settlement expansion. The barrier being erected by Israel as a part of its security effort must be a security, rather than political, barrier. And its route should take into account, consistent with security needs, its impact on Palestinians not engaged in terrorist activities."

Bush also reiterated the road map peace plan's demand that Israeli forces withdraw to their positions as of September 28, 2000, but added that this should happen "as we make progress toward security," rather than unconditionally.

Bush also promised to give $50 million in direct aid to the PA, to be earmarked for "new housing and infrastructure projects" in the Gaza Strip. At the insistence of Congress, previous aid to the Palestinians has been funneled through nongovernmental organizations rather than given directly to the PA, due to concerns about the transparency of the PA's finances. This has long been a sore point with the PA, and Bush had been widely expected to announce a direct aid grant at this meeting as a show of support for Abbas.

Nevertheless, administration officials said, the PA will have to present a detailed plan for how the money will be used before any funds are transferred.

Bush also announced that Secretary of State Condoleezza Rice will go to Jerusalem and Ramallah prior to the disengagement from Gaza to discuss Israeli-Palestinian coordination of the withdrawal and "the way back on the road map."

Bush did not make any specific demands of Abbas at the press conference regarding the need to fight terror, merely stating that "all who engage in terror are the enemies of a Palestinian state, and must be held to account." Instead, he praised Abbas for his stance on terror, saying: "The United States and the international community applaud your rejection of terrorism."

Abbas, for his part, reiterated his "determination to maintain and preserve this calm" and said that the Palestinian people support his efforts in this regard.

In response to questions afterward, Bush said that the U.S. has not changed its view that Hamas is a terrorist group, but offered no objections to Hamas running in the PA elections. However, he added, "you cannot have a democracy based upon rule of law if you have armed bands of people who will use their weapons to try to achieve a political outcome."

Abbas, in his speech, stressed the need for reform and democratization of the PA and promised to continue working toward those goals. However, he said, "democracy cannot flourish under occupation and in the absence of freedom."

He said that the PA was ready to coordinate with Israel over the withdrawal from Gaza, but "we must then immediately move to permanent status negotiations to deal with the issues of Al-Quds, East Jerusalem as a capital of the future state of Palestine, the issues of refugees, settlements, borders, security, and water, on the basis of President Bush's vision, and on the basis of UN resolutions, and the basis of the Arab Initiative."

Publicly, Bush did not respond to this demand, but a senior source in Sharon's office said that the president rejected it in private, saying he would not agree to skipping over the road map's intermediate phase to move directly to final-status talks. Phase two of the road map calls for establishing a Palestinian state with temporary borders, and this is supposed to precede the start of final-status negotiations.

The Israeli official insisted that there was nothing new in Bush's statements about the settlements, and also expressed satisfaction over the fact that Bush did not give Abbas any written document similar to his letter to Sharon last April.