US President George W. Bush said on Sunday that peace in the Middle East was possible before 2009 but that it needed action on both sides and "tough sacrifices" from Israel.
Bush also again took aim at archfoe Iran over its nuclear drive and criticised the nations of the Middle East over the lack of political freedom and human rights, the AFP reported.
"I firmly believe that with leadership and courage, we can reach that peace agreement this year... This is a demanding task, and it requires action on all sides," he said.
"Palestinians must fight terror and continue to build the institutions of a free and peaceful society. Israel must make tough sacrifices for peace and ease restrictions on Palestinians."
Bush wraps up his Middle East tour on Sunday with talks with political leaders in the Red Sea resort of Sharm el-Sheikh and a speech to the Middle East World Economic Forum, facing Arab sceptism over the chances of peace.
In his remarks issued before his address, Bush called on Middle East nations to prevent Tehran from obtaining the nuclear bomb, to isolate Iran and its closest regional ally Syria and to confront "terrorist" groups.
"Every peaceful nation in the region has an interest in stopping these nations from supporting terrorism," Bush said.
"To allow the world's leading sponsor of terror to gain the world's deadliest weapon would be an unforgivable betrayal of future generations. For the sake of peace, the world must not allow Iran to have a nuclear weapon."
OPEC member Iran has repeatedly denied seeking the atomic bomb and says its nuclear programme is aimed solely at generating energy.
Bush also called on regional states to confront Palestinian Islamist group Hamas, "which is attempting to undermine efforts at peace with continued acts of terror and violence."
Israel is currently mulling what action to take against the Hamas-ruled Gaza Strip to try to end rocket attacks by Palestinian militants, although Egypt is trying to mediate a truce.
Bush also criticised Middle East states over human rights, saying Washington was concerned about the repression of democratic activists and the plight of political prisoners.
"The time has come for nations across the Middle East to abandon these practices, and treat their people with the dignity and respect they deserve," he said, calling for the release of political prisoners.
On Saturday, the US leader pledged to Palestinian president Mahmud Abbas his determination to help achieve the "dream" of a Palestinian state, despite stagnant peace talks.
However, Abbas spokesman Nabil Abu Rudeina laid the blame for the slow pace of negotiations squarely on Israel, saying that "what Bush dreams should be implemented on the ground."
He said despite US pledges to help broker a deal by the end of Bush's term in January, all final status issues remain unresolved, adding: "Time is running out."
Bush began his tour in Israel where he addressed parliament as the Jewish nation marked the 60th anniversary of its founding, sparking Arab anger over his perceived bias towards Israel.
"Bush has forgotten his role as the just mediator and exposed his real self," charged an editorial in Egyptian state-owned newspaper Al-Gomhuria on Saturday.
Israel and the Palestinians resumed peace talks at a US meeting in November, committing themselves to a target of reaching a deal by the time Bush leaves office. So far, they have made virtually no visible progress.
Bush and Abbas also voiced concern about the situation in Lebanon, where fighting last week between pro- and anti-government forces killed 65 people and pushed the country to the brink of new civil war.
Feuding Lebanese political leaders are holding talks in Qatar aimed at ending the crisis, which has prevented the election of a president since November, and a planned meeting between Bush and Lebanese Prime Minister Fuad Siniora has been cancelled.
Bush arrived in Egypt from Saudi Arabia where he tried to press the OPEC kingpin to raise oil output in the face of rocketing oil prices near 128 dollars a barrel.
But the world's biggest crude exporter said global supply was balanced with demand, revealing it had hiked production by 300,000 barrels a day this month.
The WEF meeting, dubbed the Davos of the Middle East, will bring together 1,500 people, including heads of state, business leaders and ministers from 55 countries, under the theme "learning from the future."