Condoleezza Rice, the US Secretary of State, insisted yesterday that a peace deal between Israel and the Palestinians was still attainable this year, despite growing Palestinian frustration and a police inquiry threatening the future of the Israeli Prime Minister.

Hopes of a breakthrough have dimmed since a summit hosted by the US last November, and Mahmoud Abbas, the Palestinian President, was said to have left a recent White House meeting with President Bush in a “sour mood”, later declaring that absolutely nothing had been achieved.

Dr Rice urged Israel to stop expanding Jewish settlements in the West Bank and to tackle the problem of Israeli army checkpoints in the Palestinian territory that hinder free movement and stifle economic renewal.

Meeting Mr Abbas in Ramallah after talks with Ehud Olmert, the Israeli Prime Minister, and Ehud Barak, the Defence Minister, Dr Rice said that Mr Bush’s goal of sealing a deal on paper “if not implementing it on the ground” was still feasible.

She said: “We continue to believe it is an achievable goal to have an agreement between the Palestinians and the Israelis by the end of the year.”

But diplomatic sources in Jerusalem were sceptical, noting that Mr Bush’s scheduled visit to Israel to celebrate its 60th anniversary would not include talks with the Palestinians. A meeting in the Egyptian resort of Sharm al-Sheikh to discuss progress had also been shelved, they said.

Underscoring the difficulties, Israeli forces launched an overnight raid against Hamas militants in Gaza, during which a man aged 40 was killed and his wife injured when a missile struck their home. Three militants were wounded in a separate strike, doctors said. Hours later, Hamas rockets struck a shopping centre and a house in southern Israel, causing no injuries.

Egyptian officials did, however, say that Omar Suleiman, the Egyptian intelligence chief, would soon travel to Israel to lay out an informal ceasefire proposal covering the Gaza Strip, which Israel may accept. Israel, which is in closely guarded talks with the West Bank administration over Palestinian statehood, has said that no lasting peace deal can be delivered unless it is with all Palestinians, including Gaza, controlled by Hamas.

Another potential obstacle is the corruption probe launched last week against Mr Olmert, the fourth such investigation, which has begun to erode trust in a premier already strongly criticised over the 2006 Lebanon War. Mr Olmert vowed yesterday that the latest allegations, the details of which are still hidden behind a court gagging order, would not derail his mission to seal an accord with Mr Abbas.

But Haaretz, the Israeli newspaper, said that if sufficient public outcry developed after the gagging order was lifted, his coalition partners in the Labour Party, headed by Mr Barak, may be forced to walk out.

Times Recommends

• UN may halt 400-year-old 'freedom of the seas'
• Where the Rosetta belongs can’t be set in stone
• Gas deal on hold, but Ukraine may pay in the end