Ehud Olmert, the Israeli Prime Minister, will address the US Congress later today after his first summit with President Bush, who stressed that every effort should be made to reach a negotiated settlement on peace in the region.

Mr Bush urged the Israeli leader to hold talks with the moderate Palestinian President Mahmoud Abbas as a first step towards a road map for peace but cautiously welcomed Mr Olmert’s "bold" settlements initiative.

Both leaders agreed in a statement that a negotiated deal remained the preferred solution to the Middle East impasse, but Mr Olmert warned that patience was running out for the Hamas-led Palestinian government to meet conditions for peace talks: "We cannot be held hostage by a terrorist entity which refuses to change or to promote dialogue," he said.

Today one Israeli Cabinet minister sought to push home this message by suggesting the Israeli Government has set the Hamas-led government an end of year deadline to recognise Israel’s existence and abandon violence as a prerequisite to peace talks or face a unilateral move to draw final borders by 2010.

Haim Ramon, Justice Minister, said on Israeli national radio: "If these things don’t happen, we won’t wait for years, but rather we will wait until the end of this year."

But Steven Farrell, Middle East Correspondent of The Times, said the Israeli Foreign Ministry denied any fixed timeframe had been set. "That is not official policy," said a spokesman.

In yesterday’s Washington summit, Mr Bush appeared to give cautious encouragement to plans for settlements in the West Bank, while underscoring that a peace dialogue was preferable to unilateral action.

"Today, Prime Minister Olmert shared with me some of his ideas. I would call them bold ideas," Mr Bush said. Wary of Arab and European allies’ preference for a negotiated settlement, he added: "I believe, and Prime Minister Olmert agrees, that a negotiated final-status agreement best serves the Israelis and the Palestinians and the cause of peace."

The President also promised to come to Israel’s aid if it was attacked. Israeli commentators said this was a hint to Israel’s enemy Iran in the current nuclear stand-off.

Mr Olmert later told reporters: "I am very, very, very satisfied with the President’s comments."

The Olmert settlement plan is controversial and will prove challenging to implement. As leader of the centrist Kadima Party, Mr Olmert would need support for his plan in the Israeli Parliament, where he has a slim majority. He faces fierce opposition by ultra-nationalists who claim a biblical right to the West Bank.

Under the plan, the major Jewish settlement blocs on the West Bank where most of the 250,000 settlers live would become part of Israel, with most other settlements dismantled.

Responding to Mr Bush, the Israeli leader said he was prepared to meet the moderate Palestinian President Mahmoud Abbas in the near future.

Saeb Erekat, the Palestinian chief negotiator, responded: "President Abbas is fully ready to open final status negotiations to implement the road map."

But Sami Abu Zuhri, a spokesman for Hamas, said that Mr Bush’s encouragement for Israel’s unilateral plan for the settlements would mean "liquidation of the Palestinian cause".

Ghazi Hamad, the Hamas government’s chief spokesman, went further and said that Mr Olmert was "lying" and trying to pull the wool over the eyes of the international community by claiming to want to negotiate a two-state solution.

"The political programme of Israel is very clear -- they want to create a pure Jewish state. He (Olmert) is not interested in establishing a Palestinian state," he said.

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