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Secretary of State Condolleezza Rice commended Prime Minister Ehud Olmert for his address earlier this week at a memorial event for Israel's first Prime Minister, David Ben-Gurion, at his burial site in Sde Boker. "The speech will contribute to calm and will further the peace process in the region," sources in the Prime Minister's office quoted the visiting American official as saying.

Olmert reached out to the Palestinians on Monday, saying he was prepared to grant them a state, release desperately needed funds and free prisoners if they choose the path of peace.

During their meeting yesterday, the Prime Minister updated Rice on the talks held a day earlier with visiting Egyptian Chief of Intelligence Omar Suleiman, regarding efforts to gain the release of abducted Israel Defense Forces soldier, Gilad Shalit.

The Secretary of State informed Olmert of the content of her talks earlier in the day with Palestinian Authority Chairman Mahmoud Abbas.

Following her meeting with Olmert, Rice met with Foreign Minister Tzipi Livni.

The Secretary expressed her appreciation for the restraint Israel has exercised in recent days in the face of continued rocket fire from the Gaza Strip. Rice added that the cease-fire in the Gaza Strip needs to be bolstered with further measures.

Foreign Ministry spokesman Mark Regev told reporters that Olmert wants to extend the cease-fire to the West Bank once it has proven effective in the Gaza Strip.

Following her meeting with Abbas earlier, Rice said that Israel and the Palestinians should step up efforts to revive peace talks and move toward a solution to the Israeli-Palestinian conflict.

"Hopefully we can take this moment to accelerate our efforts and intensify our efforts toward the two-state solution that we all desire," Rice said at a news conference with Abbas.

Meanwhile, Abbas announced at the press conference that the talks with Hamas on the establishment of a government of national unity have reached a "dead end."

The PA Chairman recently proposed a compromise formula for uniting the various Palestinian factions, that also aims to bypass the preconditions of the international community for lifting sanctions against the Palestinian Authority. However, his proposal has stalled over disagreements on which ministerial portfolios would go to each faction.

The Palestinian leader said he wants to establish a government that will bring an end to the siege on the Palestinian people, adding "as far as I am concerned, I don't care who sits in it."

According to the Abbas formula, whose details have been made available to the Quartet (U.S., EU, UN, Russia) and Israel, the Chairman will present the new government to the Palestinian parliament, as well as basic guidelines to which the ministers will commit themselves. Among these basic guidelines will be recognition of previous agreements signed between Israel and the Palestine Liberation Organization, including ones for disarming all Palestinian factions.

In his speech at the Palestinian parliament, Abbas will reiterate the government's commitment to the Oslo accords, and the Prime Minister and the Chairman's intention to continue their negotiations with Israel because "that is their strategic, political and realistic choice."

Like Rice, Abbas also had good things to say about the speech Olmert made at Sde Boker.

"In the meeting with the Secretary of State we discussed the cease-fire, and we hope that we can return to the Sharm el-Sheikh understandings [which included the release of prisoners and an IDF pullout from West Bank cities]," Abbas said, "in order to bring about the resumption of the diplomatic process and the implementation of the road map."

During the meeting Abbas recommended that any future negotiations between Israel and the Palestinians be held along two tracks - one dealing with day-to-day problems and the other with political issues.

Standing alongside Abbas, Rice addressed aspirations for a Palestinian state.

"The United States has made clear that we expect it to be a viable and contiguous state when it is created," she said. "Secondly, that no actions that are being taken now should prejudge the outcome of a final status agreement. That means very clearly that if actions are being taken now, they will not be considered by the United States to prejudge the outcome of final status."

However, one Palestinian source, who attended the Rice-Abbas meeting, sought to underplay the significance of the discussion.

"Rice asked to receive updates and she got them," he said. "It is difficult to say that we reached a specific point [in the meeting]. Abu Mazen [Abbas] explained to her that at this moment there is no progress in the matter of the unity government and if the Hamas stance remains unchanged, it is possible that in two or three months we will have to go to early elections," he added.

The same source said that Hamas was very pleased with Prime Minister Ismail Haniye's reception in Egypt, his first stop in his first trip abroad since Hamas won the national elections in the Palestinian Authority earlier this year.

"They are sure that the international boycott on the Palestinian Authority is about to be lifted," he said. "In addition, they are hoping to complete a deal for the release of [IDF] soldier Gilad Shalit and thus score points in their favor among the Palestinians," the source added.