Former US secretary of state Condoleezza Rice on Sunday cited the growing financial costs to Iran of pursuing its nuclear ambitions as well as a broad-based acceptance on both sides of a two-state solution to the Israeli-Palestinian conflict as two major reasons for her optimism about the present and future of the Middle East. "Iran has been seen to be what it is. Through four UN Security Council resolutions, we have finally gotten to a place where Iran is seen as the problem, not the United States and not others," Rice said at the annual Yitzhak Rabin Memorial Lecture sponsored by the Jewish Primary Day School of the Nation's Capital. The event was her first public appearance in Washington since leaving office in January. "When I last left off, Israel and the United States sometimes had different assessments of exactly what went wrong, but basically the diplomatic course which tries to raise the cost to Iran of continuing to pursue the technologies associated with nuclear weapons production, enrichment and reprocessing, was the way that everyone was going," Rice said during the question and answer session, moderated by Leon Wieseltier, literary editor of The New Republic and a parent at the school. "The costs to Iran are getting higher. You see it in the problems with the economy. You see it in the fact that they can't do anything to shore up their oil production," Rice said. "So the hope, at this point I have to say it is more hope than experience, is that there are in fact reasonable people in Iran - I didn't say moderate; every bad American policy in the last 30 years has been looking for moderates in Iran and I'm quite confident they don't exist - but there may be reasonable people who are willing to stop incurring those costs and to make a deal, and I think that's what you have to do." Rice spoke warmly and with great respect of former prime minister Ariel Sharon, whom she described as "a tough little tank driver," citing his ability to shift the Israeli psychology. She recalling how during the Gaza disengagement in 2005, settlers asked Sharon how he could ask them to leave homes he had helped establish. "But he did ask them to leave. And he did come to believe in a two-state solution. And I think in doing so he broadened the base of acceptance of the need to divide the land and to settle other issues. And that is a very important change in the psychology of the country," she said. Rice sees a parallel movement on the Palestinian side. "Palestinians, I think, not all of them certainly, not most, share a solution that still wants the destruction of Israel. But many peaceful Palestinians accepted that only a negotiated solution would make life good for their people, and they renounced terrorism and they began to negotiate." She added, "When I last left that talk, they had made some agreements, tentative ones, but I think that you can see in the seriousness of the process that place they know the only solution is to have two states living side-by-side, and recognition of that is the most important first step to getting there." Rice repeatedly mentioned the fact that people make mistakes, and she readily acknowledged that the Bush administration had made many mistakes. "It's going to take a while to catalog them all," she said when asked through Wieseltier by The Jerusalem Post what the most serious mistake the Bush administration had made. She offered the post-Iraq invasion planning as her answer. "I would have liberated Baghdad a hundred times over. I think that was the right decision. Our assumptions about what would be left were not right. We thought we would be able to take the heads off these ministers, Saddam's henchmen, and there would be this civil service still in place. I remember standing at my desk saying to people, 'Where are the oil workers? What do you mean there are no oil workers?' Because the place had collapsed. We thought Iraq would hold together, but it collapsed. But I think part of it, too, was we weren't very good at counterinsurgency and we didn't realize you don't fight the war and it's over and then you build the peace. In response to another question from the Post, she readily acknowledged her own strong disagreement with the Presbyterian Church USA's 2005 decision to divest from companies that sell to the IDF and the Israel Police. Rice is a Presbyterian. "I fundamentally disagreed with it, and it's not the first time I have disagreed with the General Assembly of the Presbyterian Church USA. The good thing about the Presbyterian church is it's governed locally and your congregation is the important thing," she said.