Employing unprecedentedly forthright language after two days of talks with Israeli and Palestinian leaders, US President George W. Bush on Thursday set out a clear blueprint for a Palestinian state, specifying the need for modifications to the 1967 lines and indicating a rejection of the Palestinian demand for a "right of return" for refugees. The president said he believed the agreement should and could be signed by the end of the year, and National Security Adviser Stephen Hadley said Bush would be returning to the region "at least once and maybe more" before the end of his term to push his program forward. Speaking in Jerusalem, Bush stressed that a final agreement would not be implemented until both sides fulfilled their road map obligations. At a press conference in Ramallah after meeting PA President Mahmoud Abbas, Bush announced the appointment of Lt.-Gen. William Fraser III, assistant to the chairman of the Joint Chiefs of Staff, as the individual who will monitor each side's implementation of the road map obligations. Bush, at that press conference, sounded more upbeat and confident than ever before, saying "I believe it's going to happen, that there will be a signed peace treaty by the time I leave office." Later in the day, in a dramatic, unscheduled statement read to US-based reporters at the King David Hotel, Bush said the contours of the two-state solution were clear. "There should be an end to the occupation that began in 1967," Bush said. He added, in language indicating a rejection of the idea of Palestinian refugees flowing into Israel, "The agreement must establish Palestine as a homeland for the Palestinian people, just as Israel is a homeland for the Jewish people." The president went on: "These negotiations must ensure that Israel has secure, recognized, and defensible borders. And they must ensure that the state of Palestine is viable, contiguous, sovereign and independent." Bush said that reaching an agreement would require "painful concessions" by both Israel and the Palestinians. "While territory is an issue for both parties to decide, I believe that any peace agreement between them will require mutually agreed adjustments to the armistice lines of 1949 to reflect current realities and to ensure that the Palestinian state is viable and contiguous," Bush said. "I believe we need to look to the establishment of a Palestinian state and new international mechanisms, including compensation, to resolve the refugee issue." Bush did not specify what these new mechanism entailed, and Hadley said the contours were still being worked out. The president said the establishment of "the state of Palestine is long overdue. The Palestinian people deserve it. And it will enhance the stability of the region, and it will contribute to the security of the people of Israel." Following the statement, Bush went to Prime Minister Ehud Olmert's official residence for a dinner with Olmert and his senior ministers: Defense Minister Ehud Barak (Labor), Foreign Minister Tzipi Livni (Kadima) , Transportation Minister Shaul Mofaz (Kadima), Pensioners Minister Rafi Eitan (Pensioners Party), Industry and Trade Minister Eli Yishai (Shas) and Strategic Affairs Minister Avigdor Lieberman (Israel Beiteinu). Bush reportedly called Olmert a "strong political leader" who was needed for the diplomatic process to continue. Yishai presented the president a letter from Shas spiritual head Rabbi Ovadia Yosef calling for the release of Jonathan Pollard. Yishai also reportedly warned at the dinner about making peace with "half of the Palestinians." Following dinner, Bush and Olmert met for another private meeting. The president is scheduled to leave for the Persian Gulf tomorrow, after visiting Yad Vashem and Christian holy sites in the Galilee. On Thursday, his second day in the country, he met with opposition leader Binyamin Netanyahu (Likud), as well as with Ariel Sharon's sons Omri and Gilad. Following his meeting in Ramallah with Abbas, he went to the Church of the Nativity in Bethlehem. A senior official in the Prime Minister's Office said that Bush's statement on the contours of a future Palestinian state was "in accordance with the understandings reached between us and the American, and there were no surprises." The official said the statement was a continuation of longstanding positions of the Bush administration. "We see the Bush remarks as a positive basis for moving forward with the Palestinians," the official said. While Bush laid out how he thought the core issues of Jerusalem and the refugees should be solved, he was much vaguer on Jerusalem. "I know Jerusalem is a tough issue," Bush said. "Both sides have deeply felt political and religious concerns. I fully understand that finding a solution to this issue will be one of the most difficult challenges on the road to peace, but that is the road we have chosen to walk." Bush, in his statement, said he expected serious negotiations to start immediately. He also said he supported regular meetings between Abbas and Olmert because they "ultimately" will be the ones needed to make the decisions. The Jerusalem Post has learned that drafts of this statement were shown both to the Israeli and Palestinian officials over the last few days, and the sides gave their input. According to Israeli diplomatic officials, certain elements in the statement were welcome in Jerusalem, while others were deemed more "problematic." Among the welcome elements were what was deemed Bush's clear rejection of the Palestinian claim of a "right of return" to Israel, by saying that a future Palestinian state would be a homeland for the Palestinians, just as Israel is a homeland for the Jews. Jerusalem was also pleased that Bush essentially reiterated what was written in his 2004 letter to Ariel Sharon - namely that final borders will entail mutually agreed adjustments, language that Israel interprets to mean a US recognition that Israel can hold onto the large settlement blocs in a future agreement. Likewise, there was satisfaction that Bush said "security is fundamental," and that "no agreement and no Palestinian state will be born of terror." Bush also reaffirmed America's steadfast commitment to Israel's security. The most problematic aspect had to deal with some of the language, with eyebrows raised that Bush referred to the "occupation." Although he has used the word occupation before, one official said it was jarring hearing him say it in Jerusalem. Regarding the road map, Bush said that "neither party should undertake any activity that contravenes road map obligations or prejudices the final status negotiations." He said that on the Israeli side that meant ending settlement expansion and removing unauthorized outposts, and on the Palestinian side that meant confronting terrorists and dismantling terrorist infrastructure. Calev Ben-David contributed to this report.