The moment when Israel and the Palestinian Authority will have to make tough decisions is fast approaching, Prime Minister Ehud Olmert told the American Israel Public Affairs Committee conference Tuesday.

"We must stop the Iranian threat by all possible means," he said.

"Each and every country must understand that the long-term cost of a nuclear Iran greatly outweighs the short-term benefits of doing business with Iran."

Olmert is to meet Wednesday with U.S. President George W. Bush to discuss the Iranian nuclear program and upgrading security relations between the U.S. and Israel.

U.S. Secretary of State Condoleezza Rice, who also addressed the AIPAC conference in Washington Tuesday, stressed the urgency of establishing a Palestinian state, saying that the increase in violence in the Middle East makes the establishment of a peaceful Palestinian state more urgent rather than less.

That remark, however, was greeted with silence - though the secretary had been warmly greeted by the conference. AIPAC has been a leading skeptic regarding the current Palestinian leadership's ability to control terrorism should a state be established.

Rice said that while the present opportunity is not perfect by any means, it is better than any other in recent years, so it must be seized. "Israelis have waited too long for the security they desire and deserve," she said, "and Palestinians have waited too long, amid daily humiliations, for the dignity of a Palestinian state."

Regarding the Iranian issue, Rice said "We would be willing to meet with them, but not while they continue to inch closer to a nuclear weapon under the cover of talk."

"Our partners in Europe and beyond need to exploit Iran's vulnerabilities more vigorously and impose greater costs on the regime - economically, financially, politically and diplomatically," she added.

Rice also said the Palestinian track should take precedence over recently renewed Israel-Syria talks, though she stressed that the U.S. appreciated the efforts Turkey is making to mediate a peace between Israel and Syria.

Rice was scheduled to come to Israel next week. However, she has decided to cancel her trip, apparently in response to the political crisis in Israel.

Sources in Washington said Rice is concerned that the parties will not be able to reach an agreement before the end of the year, and there will be no possibility of creating continuity in the negotiations with the next American administration.

Meanwhile, in Rome, Iranian President Mahmoud Ahmadinejad said Tuesday that Israel will cease to exist with or without Iran's involvement, while in Jerusalem, Foreign Minister Tzipi Livni branded Iran a "neighborhood bully" that must be met with firmness.

Livni told a closed-door meeting of the Knesset Foreign Affairs and Defense Committee that the international community must take decisive action on Iran and reiterated that military action was an option.

On Monday, Ahmadinejad had said in Tehran that the "satanic power" of the U.S. faced destruction, and that Israel would soon disappear from the map - a theme he returned to yesterday.

"This will happen whether we are involved in it or not," he said at a news conference at a UN food summit in Rome.

"The Iranian people are the most peace-loving nation in the world, but we believe that peace can be durable and meaningful only when it is based on justice," he added.

Livni told the Knesset committee that the international community must send a strong signal to Middle Eastern nations that are undecided on which camp to join. "The inability to build an international consensus against Iran will be interpreted in our region as weakness," an official present at the meeting quoted Livni as saying.

Referring to Iran as the "neighborhood bully," Livni said that making clear that the military option is on the table "may in the future mean it is less likely to be used."