Israel and the Palestinians face a "historic moment, historic opportunity" to achieve peace in 2008 based on a two-state solution, US President George W. Bush said Wednesday in Jerusalem, adding that his job was to "help you seize that opportunity." Bush, at a press conference following a meeting with Prime Minister Ehud Olmert, said, "I believe that two democratic states, Israel and Palestine, living side-by-side in peace is in the best interest of America and the world." This was also in the long-term interest of both Israel and the Palestinians, he said. Bush's comments followed a two-and-a-half-hour meeting at Olmert's official residence, of which 90 minutes were held one-on-one with the prime minister. Officials in the Prime Minister's Office said the private meeting dealt primarily with Iran, while the wider meeting - held together with senior officials from both nations - focused on the Palestinian track. Upon his arrival at Ben-Gurion Airport, Bush said that the US's alliance with Israel helps "guarantee Israel's security as a Jewish state." This is widely considered code for a rejection of the Palestinian claim of the "right of return." Bush made no mention of this at the press conference. Though the press conference was extremely cordial, with Olmert praising Bush and thanking him for his friendship no fewer than five times, differences emerged regarding construction in east Jerusalem and the settlements. A day after US Secretary of State Condoleezza Rice told The Jerusalem Post that Jerusalem's Har Homa neighborhood was a "settlement," Olmert made clear that Israel saw a clear difference between building in east Jerusalem and the major settlement blocs, and other areas in the West Bank. "Everyone knows that certain things in Jerusalem are not on the same level as they are in other parts of the territories which are outside the city of Jerusalem, and this is also true of some population centers," Olmert said in reference to the large settlement blocs. He acknowledged that "sometimes everyone is not happy with these positions," but said Israel was not trying to conceal "any of these facts from anyone, certainly not from President Bush and Secretary Rice and of course our Palestinian partners." The prime minister said they knew there was a moratorium on new settlement and land expropriation, but that Israel had also made it known that Jerusalem and the "population centers" did not have the same status as other settlements. Olmert reiterated that Israel intended to fulfill its road map obligations to dismantle illegal settlement outposts, but said the Palestinians must fulfill their obligations as well. "Their commitments on [fighting] terror is the central key to the ability to bring the negotiations to a successful conclusion this year," Olmert said. Bush, when asked about the outposts, said simply and directly, "The outposts, yeah, they ought to go. Look, we've been talking about it for four years. The agreement was get rid of outposts, illegal outposts, and they ought to go." US National Security Adviser Stephen Hadley, who briefed reporters after the talks, said the settlement issue came up during the meeting, and Bush said there was an obligation under the road map to "stop all settlement expansion." The US president made clear that the obligation involved removing the outposts, Hadley said. He also said that "time was awasting," regarding the bilateral Israeli-Palestinian negotiations, and that Bush queried Olmert about "about how we are going to get this done, about what is his negotiating strategy." Olmert, during the press conference, said he had no intention of dragging on the negotiations, and was thankful that the negotiations were taking place on Bush's watch. "Thank God I can conduct diplomatic negotiations when George Bush is one of my partners," he said. Bush said he realized the negotiations would be difficult and entail "painful political compromises." He said the role of the US was to help in the negotiations, but not to "dictate the terms of what the [Palestinian] state will look like. The only way to have lasting peace, the only way for an agreement to mean anything is for the two parties to come together to make the difficult choices." With that, Bush said, the US would help and he would apply pressure on both sides where needed. Bush, who is scheduled to go to Ramallah Thursday for talks with the Palestinian Authority's President Mahmoud Abbas and Prime Minister Salaam Fayad, said his first question to Abbas would be what he intended to do about the Kassam rocket fire on Israel. "You can't expect Israel, and I certainly don't, to accept a state on their border that would become a launching pad for terrorist activities," he said. Regarding how he feels Israel should deal with the continual rocket attacks, Bush replied, "I would hope it is done in a way that not only protects itself but also worries about innocent lives." Israeli officials said that among the issues that are being discussed with Bush is the need for security understandings with the US ensuring that Israel would retain its freedom to conduct military operations in the West Bank and the Gaza Strip until a Palestinian security force is in place that could effectively deal with the terrorism there. Regarding the threat from Teheran, Bush said, "Iran is a threat to world peace." He reiterated the position he stated immediately following the release last month of the US National Intelligence Estimate that said Iran ceased its nuclear weapons program in 2003, saying, "Iran was a threat, Iran is a threat, and Iran will be a threat if the international community does not come together and prevent that nation from the deployment of the knowhow to build a nuclear weapons." Olmert, who said he and Bush "shared what we know about Iran" in the meeting, added that he was "encouraged and strengthened by the US position" under Bush's leadership. Olmert was joined in the wider meeting by Defense Minister Ehud Barak, Foreign Minister Tzipi Livni, Shalom Turgeman and Ambassador to the US Sallai Meridor,as well as the prime minister's chief of staff, Yoram Turbowicz, foreign policy adviser, Shalom Turgeman, and military attachÃ© Meir Kalifi. Bush was joined by Rice, Hadley, White House chief of staff Josh Bolton, Deputy National Security Adviser Elliott Abrams, Assistant Secretary of State for Near Eastern Affairs David Welch and US Ambassador Richard Jones. Prior to the meeting the two principals exchanged gifts. Olmert presented Bush - an avid bicycle rider - with a biking suit and GPS system for his bike. Olmert had the suit embroidered with the words "George W. 43" on the back, referring to Bush's status as the 43rd US president. Bush gave Olmert a soccer ball with the Israeli and US flags on it. Calev Ben-David contributed to this report.