Israeli Prime Minister Ehud Olmert says he hopes to revive long-stalled peace efforts with the Palestinians, as a ceasefire takes hold in the Gaza Strip.
In a major policy speech, Mr Olmert pledged humanitarian and economic incentives if militants freed a captive Israeli soldier and violence ceased.
The speech comes against a backdrop of increased international diplomacy.
Palestinian Authority President Mahmoud Abbas's aides said talks should resume immediately and unconditionally.
But officials from the militant Hamas party, which won parliamentary elections in January, expressed suspicion about Mr Olmert's statement and demanded an end to military action in the West Bank and
Hamas government spokesman Ghazi Hamad called Mr Olmert's statement a "conspiracy" and "a new maneuver".
"Mr Olmert is speaking about the Palestinian state without giving details about the borders," Mr Hamad said.
The
"I think this, combined with the announcement of a ceasefire, are certainly welcome developments, certainly potentially promising," said state department spokesman Sean McCormack.
Earlier, Israeli troops shot and killed two Palestinians in a raid in the West Bank town of
The official Palestinian news agency said the woman was shot as she went to the aid of an injured militant from the Popular Resistance committees. The Israeli army said she had been trying to recover his gun.
Under the ceasefire which came into force on Sunday, Palestinian militants have agreed to stop rocket attacks on
However, rockets have continued to be fired, the latest attack hitting the Israeli border town of
Olive branch
Mr Olmert said Palestinians would see substantive improvements in their lives if they chose the path of peace.
"I hold out my hand in peace to our Palestinian neighbors in the hope that it won't be returned empty," Mr Olmert said
Mr Olmert spoke of releasing many long-term Palestinian detainees in Israeli jails, lifting restrictions on the occupied territories, dismantling settlements and ultimately creating a viable state.
However, he also warned of the dire consequences if violence continued.
He was speaking at an annual memorial at the grave of
The BBC's Jon Leyne in
The last four months have seen an upsurge of violence in the Gaza Strip which has killed more than 300 Palestinians, including scores of civilians. Five Israelis have also died.
Israeli troops re-entered
Mr Olmert won elections in March on a pledge to make further unilateral withdrawals, but credibility in the policy was dashed in a summer of conflict in
Hamas won election on a platform of not recognizing
Photo Caption
Ehud Olmert, the Israeli Prime Minister