President Bush says he sees a "great chance" for creating a Palestinian state in the aftermath of Yasser Arafat's death.
At a joint news conference with Britain's Tony Blair, the president said he intends to "spend the capital of the United States" during his second term to make it happen.
However, Bush did not name a new Mideast envoy, and reserved judgment on Blair's call for an international conference. Plus, both men said their efforts would depend on new Palestinian elections producing a leadership committed to ending terror.
Bush also used the news conference to claim "substantial progress" in stabilizing Iraq, despite tough fighting in Fallujah and elsewhere. But he warned violence could increase as planned elections in January approach.
And Bush announced plans for a trip to Europe soon after his inauguration. Relations with some allies remain frayed over Iraq.