President Bush is hailing Ariel Sharon's plan to pull out of Gaza and parts of the West Bank as a "historic" step toward a Palestinian state.
But he also says Israel shouldn't have to give up the whole West Bank in a future peace deal.
The president spoke after meeting the Israeli prime minister to discuss his controversial plan. Many Israelis oppose abandoning Jewish settlements, and Palestinians fear the withdrawal would let Israel dictate borders.
However, Bush praised Sharon as "bold and courageous" and called on Palestinians to match his efforts.
In a concession long sought by Israel, Bush said it's not "realistic" to expect Israel to give up West Bank "population centers" or absorb millions of Palestinian refugees. He said "realities on the ground" have changed.
Palestinian leader Yasser Arafat has warned those concessions will kill the peace process.