Meeting with Israeli Prime Minister Ariel Sharon and deputy PM Shimon Peres on Sunday, Rice added that the disengagement should give a sense of confidence and trust between Israelis and Palestinians.
"This is an historic step that can lead to the eventual resolution and the eventual ability to get to a two-state solution," she said.
The top US diplomat flew to the region at President George Bush's behest bringing a message that time was running short to finalise arrangements for the disengagement from Gaza and parts of the West Bank, to begin in August.
Describing the end of Gaza's occupation as a "step that is a very difficult one for Israel", Sharon agreed that "a smooth and successful implementation of the plan in coordination with the Palestinians will help energise the political process under the roadmap".
"The fruits of the disengagement can already be seen, and I am confident that our political, security and economic status will improve even more as a result of this disengagement plan," he added.
However, he and other Israeli officials reiterated that any progress towards peace depended on firmer Palestinian action to rein in its resistance groups in the occupied territories and repeated their refusal to have any contacts with Islamist organisation Hamas.
Rice later met Foreign Minister Silvan Shalom, who also spoke of a "huge opportunity" in the Gaza disengagement and said "we should do everything we can in order to strengthen the (Palestinian) moderates and to isolate the extremists".
"We should do everything we can in order to enable the Palestinian leadership to move to peace and in the same time not to have any kind of dialogue with the Hamas," Shalom added.
"We should do everything we can in order to enable the Palestinian leadership to move to peace and in the same time not to have any kind of dialogue with the Hamas"
Israeli foreign minister
Rice - also due to meet top army and intelligence officials - had issued a stern warning to Israel before her arrival not to compromise the peace process by continuing to expand settlements in the occupied West Bank.
The state secretary added that both the Israeli and Palestinian governments had agreed Jewish settlers houses should be demolished after their removal from the occupied Gaza Strip.
Rice told reporters on Sunday that both sides had agreed that the 1200-plus houses would do little to address the needs of the 1.3 million Palestinians living in the territory.
"The view is that there are better land uses for the Palestinians to better address their housing needs," Rice said after talks with Israeli leaders including Prime Minister Ariel Sharon.
"The important thing is that the parties want to work on this issue together."
She told reporters in the West Bank town of Ram Allah on Saturday that both sides must come to terms on thorny issues related to the Gaza pullout, such as border control, freedom of movement, distribution of assets and security roles.
The US has urged Israel to
withdraw its soldiers from Gaza
"This now has to be an active process of resolving these (issues)," she told a joint news conference with Palestinian leader Mahmud Abbas.
But Rice reported no headway on any of the fronts and renewed her concerns over progress by the Palestinians in reforming their security services and cracking down on resistance groups.