In a statement which goes beyond anything senior US leaders have said before, Secretary of state Condoleezza Rice has said it is time for a Palestinian state to be founded, and that the American government will put its full weight behind such efforts.

Dr Rice said reaching a two-state solution was a priority for her and US President George Bush. She was speaking from the West Bank, where she has been trying to get agreement for a peace summit in the United States.

Meanwhile, the BBC reports that Israeli Prime Minister has hinted he may consider giving up Palestinian districts in Jerusalem in a peace deal.

Ehud Olmert told parliament that "legitimate questions" could be asked about the Israeli annexing of outlying Palestinian neighbourhoods in East Jerusalem following the 1967 war.

Palestinians want East Jerusalem as the capital of a future state of Palestine, and the issue is one of the most sensitive and intractable of the Israeli-Palestinian conflict.

Analysts says that Dr Rice's statement is perhaps the clearest sign of a shift in direction within the United States, but point out that past rhetoric supporting a two-state solution has been undermined by the consistent blocking of any serious political moves which would upset the Israeli government - effectively giving the Israeli administration a veto. This, they say, needs to change.

There are also serious questions about whether the leading role being sought by the US in peace talks is detracting from the need for a Middle East based solution, and concerns about the blocking actions of the US within the Quartet of 'major powers', which has put the United Nations - as a bipartisan international participant - in a difficult position.