And I appreciate your introduction. I appreciate the friendship that you and Cheryl have given to me and to my family. You've been friends for many years. And certainly, as anyone who knows Haim understands, as an entrepreneur, a philanthropist, he is unparalleled, but also as a champion for peace. He represents in many ways in the best qualities of both Israel and America. He's generous, he's irrepressible, and absolutely unstoppable. And he has dedicated his energy and support to so many important causes and helped so many people. But he has probably no deeper passion than the one we are here discussing tonight - strengthening U.S.-Israeli relations and securing a just and lasting peace in the Middle East.

So I thank him and I thank Strobe Talbott, I thank Martin Indyk, and I thank all of you. And in particular, I appreciate your bringing us together to discuss the crucial issues surrounding the Middle East. I also want to acknowledge all of the colleagues from Israel who are here. Certainly, you'll hear in a minute from Defense Minister Barak.

There are other members of the Israeli Government here - opposition leader Livni, and I'm delighted that Prime Minister Fayyad is also with us. Prime Minister Fayyad has accomplished a great deal in a short amount of time under very difficult circumstances. Along with President Abbas, he has brought strong leadership to the Palestinian Authority and he has helped advance the cause of a two-state solution by making a real difference in the lives of the Palestinian people. So Mr. Prime Minister, welcome again to Washington and thank you for your very good work. (Applause.)

Now, you don't have to read secret diplomatic cables to know that we are meeting during a difficult period in the pursuit of peace in the Middle East. I understand and indeed I share the deep frustrations of many of you in this room and across the region and the world. But rather than dwell on what has come before, I want to focus tonight on the way forward, on America's continuing engagement in helping the parties achieve a two-state solution that ends the conflict between Israelis and Palestinians once and for all, and on what it will take, finally, to realize that elusive, but essential goal.

Before I go further, I want to offer the deepest condolences of the American people for the lives lost in the recent fires in Northern Israel. Israelis are always among the first to lend a hand when an emergency strikes anywhere in the world. So when the fires began to burn, people and nations stepped up and offered help. It was remarkable to watch. Turkey sent planes; Egypt and Jordan donated chemicals and equipment; the Palestinian Authority dispatched firefighters and their trucks; and the United States was also part of the effort deploying expert firefighters, C-130 cargo planes, and thousands of gallons of chemicals and suppressants. It was testament once again to the deep and enduring bonds that unite our two countries, to the partnership between our governments, and the friendship between our people.

The United States will always be there when Israel is threatened. We say it often, but it bears repeating: America's commitment to Israel's security and its future is rock solid and unwavering, and that will not change. From our first days in office, the Obama Administration has reaffirmed this commitment. For me and for President Obama, this is not simply a policy position. It is also a deeply held personal conviction.

Over the last two years under President Obama's leadership, the United States has expanded our cooperation with Israel and focused in particular on helping Israel meet the most consequential threats to its future as a secure and democratic Jewish state. Our security relationship has grown broader, deeper, and more intense than ever before. And we have not just worked to maintain Israel's qualitative military edge. We have increased it through new advances like the Iron Dome, a short-range rocket defense system that will help protect Israeli homes and cities. And our military continues to work closely with the IDF through exchanges, training, and joint exercises.

For Israel and for the region, there may be no greater strategic threat than the prospect of a nuclear-armed Iran. We just heard my husband speaking to that. And let me restate clearly: The United States is determined to prevent Iran from developing nuclear weapons. And along with our international partners, we have implemented tough new sanctions whose bite is being felt in Tehran. Iran's leaders face a clear choice, one of those tough choices that Strobe mentioned as the theme of this forum: Meet your international responsibilities or face continued isolation and consequences.

We have also stepped up efforts to block the transfer of dangerous weapons and financing to terrorist groups like Hezbollah and Hamas. But Iran and its proxies are not the only threat to regional stability or to Israel's long-term security. The conflict between Israel and the Palestinians and between Israel and Arab neighbors is a source of tension and an obstacle to prosperity and opportunity for all the people of the region. It denies the legitimate aspirations of the Palestinian people and it poses a threat to Israel's future security. It is at odds also with the interests of the United States.

I know that improvements in security and growing prosperity have convinced some that this conflict can be waited out or largely ignored. This view is wrong and it is dangerous. The long-term population trends that result from the occupation are endangering the Zionist vision of a Jewish and democratic state in the historic homeland of the Jewish people. Israelis should not have to choose between preserving both elements of their dream. But that day is approaching.

At the same time, the ever-evolving technology of war, especially the expanding reach of the rockets amassed on Israel's borders means that it will be increasingly difficult to guarantee the security of Israeli families throughout the country without implementing peace agreements that answer these threats.

Continuing conflict also strengthens the hands of extremists and rejectionists across the region while sapping the support of those open to coexistence and cooperation. Radicalization of the region's young people and growing support for violent ideologies undermine the stability and prosperity of the Middle East. The United States looks at these trends. We reflect on our deep and unwavering support of the state of Israel and we conclude without a shadow of a doubt that ending this conflict once and for all and achieving a comprehensive regional peace is imperative for safeguarding Israelis' future.

We also look at our friends the Palestinians, and we remember the painful history of a people who have never had a state of their own, and we are renewed in our determination to help them finally realize their legitimate aspirations. The lack of peace and the occupation that began in 1967 continue to deprive the Palestinian people of dignity and self-determination. This is unacceptable, and, ultimately, it too is unsustainable.

So for both Israelis and Palestinians and, indeed, for all the people of the region, it is in their interest to end this conflict and bring a just, lasting, and comprehensive peace to the Middle East based on two states for two peoples.

For two years, you have heard me and others emphasize again and again that negotiations between the parties is the only path that will succeed in securing their respective aspirations; for the Israelis, security and recognition; for the Palestinians, an independent, viable sovereign state of their own. This remains true today. There is no alternative other than reaching mutual agreement. The stakes are too high, the pain too deep, and the issues to complex for any other approach.

Now, it is no secret that the parties have a long way to go and that they have not yet made the difficult decisions that peace requires. And like many of you, I regret that we have not gotten farther faster in our recent efforts. That is why yesterday and today I met with Israeli and Palestinian negotiators and underscored our seriousness about moving forward with refocused goals and expectations.

It is time to grapple with the core issues of the conflict on borders and security; settlements, water and refugees; and on Jerusalem itself. And starting with my meetings this week, that is exactly what we are doing. We will also deepen our strong commitment to supporting the state-building work of the Palestinian Authority and continue to urge the states of the region to develop the content of the Arab Peace Initiative and to work toward implementing its vision.

Over recent months, Prime Minister Netanyahu and President Abbas have met face to face multiple times. I have been privileged to be present during their meetings in Sharm el-Sheikh, in Jerusalem, and in Washington. I have also had the chance to talk with each leader privately. These were meaningful talks that yielded new clarity about the gaps that must be bridged.

Significantly, both sides decided together to pursue a framework agreement that would establish the fundamental compromises on all permanent status issues and pave the way for a final peace treaty.

Reaching this goal will not be easy by any means. The differences between the two sides are real and they are persistent. But the way to get there is by engaging, in good faith, with the full complexities of the core issues and by working to narrow the gaps between the two sides.

By doing this, the parties can begin to rebuild confidence, demonstrate their seriousness, and hopefully find enough common ground on which to eventually re-launch direct negotiations and achieve that framework.

The parties have indicated that they want the United States to continue its efforts. And in the days ahead, our discussions with both sides will be substantive two-way conversations with an eye toward making real progress in the next few months on the key questions of an eventual framework agreement. The United States will not be a passive participant. We will push the parties to lay out their positions on the core issues without delay and with real specificity. We will work to narrow the gaps asking the tough questions and expecting substantive answers. And in the context of our private conversations with the parties, we will offer our own ideas and bridging proposals when appropriate.

We enter this phase with clear expectations of both parties. Their seriousness about achieving an agreement will be measured by their engagement on these core issues. And let me say a few words about some of the important aspects of these issues we will be discussing.

First, on borders and security. The land between the Jordan River and the Mediterranean is finite, and both sides must know exactly which parts belong to each. They must agree to a single line drawn on a map that divides Israel from Palestine and to an outcome that implements the two-state solution with permanent Palestinian borders with Israel, Jordan, and Egypt. The Palestinian leaders must be able to show their people that the occupation will be over. Israeli leaders must be able to offer their people internationally recognized borders that protect Israel's security. And they must be able to demonstrate to their people that the compromises needed to make peace will not leave Israel vulnerable. Security arrangements must prevent any resurgence of terrorism and deal effectively with new and emerging threats. Families on both sides must feel confident in their security and be able to live free from fear.

Second, on refugees. This is a difficult and emotional issue, but there must be a just and permanent solution that meets the needs of both sides.

Third, on settlements. The fate of existing settlements is an issue that must be dealt with by the parties along with the other final status issues. But let me be clear: The position of the United States on settlements has not changed and will not change. Like every American administration for decades, we do not accept the legitimacy of continued settlement activity. We believe their continued expansion is corrosive not only to peace efforts and two-state solution, but to Israel's future itself.

And finally, on Jerusalem which is profoundly important for Jews, Muslims, and Christians everywhere. There will surely be no peace without an agreement on this, the most sensitive of all the issues. The religious interests of people of all faiths around the world must be respected and protected. We believe that through good faith negotiations, the parties should mutually agree on an outcome that realizes the aspirations for both parties, for Jerusalem, and safeguard its status for people around the world.

These core issues are woven together. Considering the larger strategic picture makes it easier to weigh the compromises that must be made on both sides and see the benefits to be gained. We are not moving forward in a vacuum. From day one, the Obama Administration has recognized the importance of making progress on two simultaneous and mutually reinforcing tracks - negotiations between the parties and institution-building that helps the Palestinians as they prepare to govern their own state. Improvements on the ground give confidence to negotiators and help create a climate for progress at the peace table.

So even as we engage both sides on the core issues with an eye toward eventually restarting direct negotiations, we will deepen our support of the Palestinians' state-building efforts. Because we recognize that a Palestinian state achieved through negotiations is inevitable.

I want, once again, to commend President Abbas and Prime Minister Fayyad for their leadership in this effort. Under the Palestinian Authority's Two-Year State-Building plan, security has improved dramatically, services are being delivered, and the economy is growing.

It is of course true that much work remains to reverse a long history of corruption and mismanagement. But Palestinians are rightfully proud of the progress they have achieved, and the World Bank recently concluded that if the Palestinian Authority maintains its momentum in building institutions and delivering public services, it is - and I quote - "Well positioned for the establishment of a state at any point in the near future."

The United States is continuing our efforts to support this important work along with many other international partners, NGOs and governments, including the government of Israel to bring together key players to focus on solving specific challenges in the region, including in the Palestinian territories, we have launched an initiative called Partners for a New Beginning chaired by Madeleine Albright, Walter Isaacson, and Muhtar Kent. And we are working directly with the Palestinian Authority on a range of issues. Last month I was pleased to announce the transfer of an additional $150 million in direct assistance to the Palestinian Authority.

This fall, to cite one example, American experts in partnership with the Palestinian Water Authority, began drilling new and much needed wells in Hebron. And with recent Israeli approvals, we soon will begin several water infrastructure projects in Gaza that the Palestinian Authority has identified as priorities. These and other efforts to expand wastewater treatment and provide sanitation services have already helped 12,000 Palestinian families gain access to clean water.

The United States is working with the Palestinian Authority, with Israel, and with international partners to ease the situation in Gaza and increase the flow of needed commercial goods and construction supplies while taking appropriate measures to ensure they don't fall into the wrong hands. We are pleased with Israel's recent decision to allow more exports from Gaza which will foster legitimate economic growth there. This is an important and overdue step, and we look forward to seeing it implemented.

Now, we also look forward to working with Israel and the Palestinian Authority on further improvements while maintaining pressure on Hamas to end the weapons smuggling and accept the fundamental principles of peacemaking - recognizing Israel, renouncing violence, and abiding by past agreements. This is the only path to achieve Palestinians' dreams of independence.

Security is one area where the Palestinian Authority has made some of its most dramatic progress. I have seen it myself on recent trips to the West Bank, where well-trained and well-equipped Palestinian security forces stood watchful guard. Families in Nablus and Jenin shop, work, and play with a newfound sense of security, which also contributes to the improved economic conditions. As the Palestinian security forces continue to become more professional and capable, we look to Israel to facilitate their efforts. And we hope to see a significant curtailment of incursions by Israeli troops into Palestinian areas.

But for all the progress on the ground and all that the Palestinian Authority has accomplished, a stubborn truth remains: While economic and institutional progress is important, indeed necessary, it is not a substitute for a political resolution. The legitimate aspirations of the Palestinian people will never be satisfied, and Israel will never enjoy secure and recognized borders until there is a two-state solution that ensures dignity, justice, and security for all.

This outcome is also in the interests of Israel's neighbors. The Arab states have a pivotal role to play in ending the conflict. Egypt and Jordan in particular have been valuable partners for peace. In the days ahead, as we engage with the parties on the core issues and support the Palestinian people's efforts to build their own institutions, we will also continue our diplomacy across the region and with our partners in the Quartet. Senator Mitchell will leave this weekend for Jerusalem and Ramallah and will then visit a number of Arab and European capitals.

Our message remains the same: The Arab states have an interest in a stable and secure region. They should take steps that show Israelis, Palestinians, and their own people that peace is possible and that there will be tangible benefits if it is achieved. Their support makes it easier for the Palestinians to pursue negotiations and a final agreement. And their cooperation is necessary for any future peace between Israel and Lebanon and Israel and Syria.

We continue to support the vision of the Arab Peace Initiative, a vision of a better future for all the people of the Middle East. This landmark proposal rests on the basic bargain that peace between Israel and her neighbors will bring recognition and normalization from all the Arab states. It is time to advance this vision with actions, as well as words. And Israel should seize the opportunity presented by this initiative while it is still available.

In the end, no matter how much the United States and other nations around the region and the world work to see a resolution to this conflict, only the parties themselves will be able to achieve it. The United States and the international community cannot impose a solution. Sometimes I think both parties seem to think we can. We cannot. And even if we could, we would not, because it is only a negotiated agreement between the parties that will be sustainable. The parties themselves have to want it. The people of the region must decide to move beyond a past that cannot change and embrace a future they can shape together.

As a political figure, a Senator, and now as Secretary of State, I have seen what it takes for old adversaries to make sacrifices and come together on common ground. Unfortunately, as we have learned, the parties in this conflict have often not been ready to take the necessary steps. Going forward, they must take responsibility and make the difficult decisions that peace requires.

And this begins with a sincere effort to see the world through the other side's eyes, to try to understand their perspective and positions. Palestinians must appreciate Israel's legitimate security concerns. And Israelis must accept the legitimate territorial aspirations of the Palestinian people. Ignoring the other side's needs is, in the end, self-defeating.

To have a credible negotiating partner, each side must give the other the room, the political space to build a constituency for progress. Part of this is recognizing that Israeli and Palestinian leaders each have their own domestic considerations that neither side can afford to ignore. It takes two sides to agree on a deal and two sides to implement a deal. Both need credibility and standing with their own people to pull it off.

So this is also about how the leaders prepare their own people for compromise. Demonizing the other side will only make it harder to bring each public around to an eventual agreement.

By the same token, to build trust and momentum, both sides need to give the other credit when they take a hard step. As we begin to grapple with the core issues, each side will have to make difficult decisions, and they deserve credit when they do so. And it should not just be the United States that acknowledges moves that are made; the parties themselves must do so as well.

To demonstrate their commitment to peace, Prime Minister Netanyahu and President Abbas and their respective teams should take these steps. They should help build confidence, work to minimize distractions, and focus on the core questions, even in a period when they are not talking directly.

To demonstrate their commitment to peace, Israeli and Palestinian leaders should stop trying to assign blame for the next failure, and focus instead on what they need to do to make these efforts succeed.

And to demonstrate their commitment to peace, they should avoid actions that prejudge the outcome of negotiations or undermine good faith efforts to resolve final status issues. Unilateral efforts at the United Nations are not helpful and undermine trust. Provocative announcements on East Jerusalem are counterproductive. And the United States will not shy away from saying so.

America is serious about peace. We know the road forward will not be easy. But we are convinced that peace is both necessary and possible. So we will be persistent and press forward. We will push the parties to grapple with the core issues. We will work with them on the ground to continue laying the foundations for a future Palestinian state. And we will redouble our regional diplomacy. When one way is blocked, we will seek another. We will not lose hope and neither should the people of the region.

Peace is worth the struggle. It is worth the setbacks and the heartaches. A just and lasting peace will transform the region. Israelis will finally be able to live in security, at peace with their neighbors, and confident in their future. Palestinians will at last have the dignity and justice they deserve with a state of their own and the freedom to chart their own destiny. Across the Middle East, moderates and advocates of peace and coexistence will be strengthened, while old arguments will be drained of their venom and the rejectionists and extremists will be exposed and marginalized.

We must keep our eyes trained on this future and work together to realize it. That is what this is all about. That is what makes the compromises and difficult decisions worth it, for both sides.

We are now in the holiday season, a time of reflection and fellowship. The National Christmas Tree is lighting up the sky. Jewish families have just completed the eight days of Hanukkah, the Festival of Lights, which reminds us that even when the future looks darkest, there is light and hope to be found through perseverance and faith. Muslims around the world also recently celebrated Eid al-Adha, the Festival of Sacrifice, which teaches the story of a man whose faith was tested when he was ordered by God to give up his beloved son. Whether we call him Abraham, Avraham, or Ibrahim, this man is the father of all the faiths of the Holy Land. He is a reminder that despite our differences, our histories are deeply entwined. And so too are our futures.

Today we should remember these stories. Sometimes we will be asked to walk difficult roads together, and sometimes these roads will be lined with naysayers, second-guessers, and rejectionists. But with faith in our common mission, we can and will come through the darkness together. That is the way - the only way toward peace, and that is what I hope we will keep in mind as we make this journey - this difficult journey toward a destination that awaits.

Thank you and may God bless you in this effort.

PRN: 2010/1794