While acknowledging that an agreement with the Palestinians on all issues, including Jerusalem, was impossible by the end of 2008, Prime Minister Ehud Olmert still wants to see a "historic agreement" concluded by the end of the year that will explicitly state that Jerusalem will be left for a later day and a different framework, diplomatic officials told The Jerusalem Post Monday. The officials' comments came after Olmert said Monday in an appearance at the Knesset Foreign Affairs and Defense Committee that a comprehensive agreement with the Palestinian Authority was impossible by the end of the year due to the difficulty of negotiations surrounding the issue of Jerusalem. However, senior diplomatic officials said Olmert still believed a historic agreement that would touch with "great specificity" on all the other core issues was within reach. Written into the agreement would be a clause defining an agreed-upon mechanism between Israel and the PA for dealing with the issue of Jerusalem in 2009. Olmert, in what was likely to be his last appearance before the Foreign Affairs and Defense Committee before the Kadima Party primaries in late September, said the gaps between Palestinian and Israeli negotiating positions on key topics other than Jerusalem, such as the refugee issue and permanent borders, "are not impossible to bridge." "There is no practical possibility to get to an understanding about Jerusalem by the end of this year," Olmert said, adding that there were no ongoing negotiations on the topic. Instead, he said, he hoped that the current negotiations would include the "creation of a mechanism that allows us to get to a solution regarding Jerusalem." This was the second time Olmert has publicly discussed creating a new mechanism to deal with the Jerusalem issue. In May, during the visit of US President George W. Bush, Olmert indicated during a public appearance with Bush that he was interested in drawing up an agreement with the Palestinians that would include understandings on borders, refugees and security arrangements, but leave Jerusalem for a later date. In this way, a lack of agreement on Jerusalem, the most sensitive of the "core issues," would not torpedo agreement on other issues, where there was widely believed to be a greater degree of understanding. This, according to senior diplomatic sources, remains Olmert's overriding goal. Regarding the other core issues, Olmert - in reference to the refugee issue - said in the Knesset: "We can get to an understanding that won't require us to take responsibility or to find a solution to the problem within Israel's borders." "Our standpoint is that the State of Israel is the national homeland of the Jewish people and that Palestine is the country of the Palestinians," he said, in a rare use of the word "Palestine" to recognize a territorial and possibly political entity. Negotiation was currently underway, he said, on the issue of refugees, permanent borders and security arrangements. Olmert also announced that the decisions on final status would "involve a democratic process that will take into consideration the variety of different opinions in Israel." Although he did not respond to calls from MK Yisrael Katz (Likud) to specify what he meant by "democratic process," Olmert promised that he would "consult with opposition leader Binyamin Netanyahu" before making the final decision. But despite the lack of active negotiation on the issue of Jerusalem, Olmert hinted at a final agreement that would not include the Arab neighborhoods located in east Jerusalem. "The recent incidents of terror were all carried out by residents of Jerusalem. Whoever thinks that the basic fabric of Jerusalem will continue as it is - including 270,000 Arabs - will have to come to terms with the fact that there will be more bulldozers," he said, alluding to the two most recent terrorist attacks carried out in the capital. "We must take into consideration that a Jerusalem resident can move freely throughout all of Israel and we cannot necessarily predict what he will do." During his briefing in the Knesset, which was presented under the title of "Israel's strategic situation," Olmert offered a generally optimistic picture of the security situation. He emphasized that Israel was enjoying a newfound strength in its relations with Hizbullah, and dismissed the likelihood of any increase of hostilities along the northern border. Hizbullah, he said, was now more concerned with the political situation in Lebanon, and the "disappearance" of Hizbullah commander Imad Mughniyeh had created a deterrent effect. "Before 2006, Hizbullah feared Israel but could predict how the diplomatic leadership would respond, but now they can't predict our response," Olmert said. Regarding Hizbullah's Syrian sponsors, Olmert said Syria must understand "that they cannot take the path of peace while preserving their ties with Iran, terror in Iraq, Hizbullah and West Bank terror groups." "There is no need for public ultimatums, but they must be given a real strategic choice on the way to peace and detachment from the axis of evil," he said. "This [choice] includes ties with the West and bolstering the Syrian economy." Olmert responded to critics who said he had pursued Syrian President Bashar Assad at a conference in Paris earlier in the month for a handshake that never materialized. "We didn't try to establish any direct contact with Syria during the conference because we knew that it would be artificial," Olmert said. "The Syrians knew that I had no intent to be with him in any incidental contact, despite the hundreds of photographers waiting for the opportunity." Meanwhile, Defense Minister Ehud Barak arrived in Washington Monday to kick off a week of meetings Israeli officials are holding with their American counterparts to consult on the contours of an Israeli-Palestinian agreement and discuss policy on Iran as the Bush administration enters its final six months in office. Aware of the impending transfer of power in the American political scene, which could be mirrored by similar changes in Israel and the PA, Israeli officials are looking to pave the way for a transition that could extend the Israeli-Palestinian negotiations into next year even as they seek to shorten the time line for action on Iran. Foreign Minister Tzipi Livni is set to arrive on Wednesday for talks with US Secretary of State Condoleezza Rice and Ahmed Qurei, who heads the PA's negotiating team, followed by Transportation Minister Shaul Mofaz, who will focus on Iran as head of the Israeli side of the strategic dialogue between the two countries. The State Department, meanwhile, continued to stand by the original Annapolis time line of reaching a shelf agreement by the end of the year, and put the week's discussions in that context. "Our goal, of course, although these are difficult discussions, is to have an agreement by the end of the year, something that we continue to seek, that we'll work towards," State Department spokesman Gonzalo Gallegos told reporters Monday. "In terms of working with the two sides, it remains the same. We're going to continue working with those two sides to hopefully bring them together." But Israeli officials have their doubts. "I don't think it's going to happen by the end of the year," said one Israeli diplomatic official, pointing to a lack of basic frameworks such as how security would be handled in a Palestinian state. He said that was one of the subjects that Barak would be dealing with during his talks with American officials. Barak's schedule Monday included a meeting with Defense Secretary Robert Gates and Vice President Richard Cheney, with consultations with Rice and National Security Adviser Stephen Hadley scheduled for Tuesday, as well as a private dinner with the former.