US President George W Bush has given qualified backing to Israeli proposals to unilaterally redraw Israel's boundaries in the occupied West Bank.
Speaking after talks in Washington with Prime Minister Ehud Olmert, he described the Israeli plan as "bold".
But he urged Israel to resume direct talks with the Palestinians and said a unilateral solution was a last resort.
Palestinians see Mr Olmert's plan as a land grab of territory captured by Israel in 1967 and have condemned it.
Mr Olmert said he would exhaust all bilateral options before going it alone to set Israel's final borders.
But he said he would not negotiate with a government led by the Islamic militant movement Hamas, which Israel, the US and the EU brand a terror group.
Mr Olmert is proposing a withdrawal of tens of thousands of Israelis from isolated settlements in the West Bank, but the consolidation of other settlements housing hundreds of thousands of others.
The Palestinians say such a solution would leave them unable to establish a viable state and accuse Mr Olmert of not being serious about negotiations.
Speaking after the two men met at the White House, Mr Bush said he believed a negotiated settlement could still be reached between Israel and Palestinian Authority President Mahmoud Abbas.
"I believe, and Prime Minister Olmert agrees, that a negotiated final status agreement best serves both the Israelis and the Palestinians and the cause of peace," he said.
The US president made a distinction between Mr Abbas, who he said "speaks out for peace", and the militant group Hamas "who does not".
Israel withdrew from the Gaza Strip in September 2005
Hamas, which won parliamentary elections in January, does not recognise Israel and has rejected calls for a permanent end to violence.
Mr Bush said a settlement should be based on the establishment of two states living side-by-side, as envisioned in the 2002 roadmap peace plan.
But he added: "Today, Prime Minister Olmert shared with me some of his ideas. I would call them bold ideas... (which) could be an important step toward the peace we both support."
The Israeli prime minister reiterated that he would not negotiate with Hamas until it "renounced terrorism" and recognised Israel's right to exist.
"Despite our sincere desire for negotiations, we cannot wait indefinitely for the Palestinians to change," he said.
However, Mr Olmert made what appeared to be a significant concession by saying he would try to pursue talks with Mr Abbas, the BBC's Justin Webb reports.
Hours after the White House meeting, Israeli cabinet minister Haim Ramon said if Hamas does not recognise Israel and renounce violence before the end of 2006 Israel should push ahead unilaterally with its border plan.
"This will be a year of diplomacy," Mr Ramon told Israel Radio.
On Tuesday, Palestinian Prime Minister Ismail Haniya, said peace would prevail only if Israel withdrew from all the land it captured in 1967, that is the West Bank, including East Jerusalem, and the Gaza Strip.
'Facts on the ground'
The meeting in Washington was the first between the two leaders since Mr Olmert won the election in March.
In 2004, Mr Bush appeared ready to allow Israel to retain large settlement blocs within the West Bank, calling some major settlements "facts on the ground".
All Israeli settlements within land occupied during the 1967 Arab-Israeli war are judged illegal under international law, although Israel disputes this.
Mr Olmert, under former Prime Minister Ariel Sharon, played a key role in last year's withdrawal of Israeli settlers and soldiers from the Gaza Strip and part of the West Bank.