Blair pledged on Wednesday to keep pushing for more aid to combat poverty in Africa and global warming, the two issues he has made the focus of this year's meeting but both goals that are more ambitious than those embraced by Bush.
Leaders of the United States, Japan, Germany, France, Britain, Italy, Canada and Russia are gathered for their annual economic summit.
Early on Thursday, police threw up a security cordon around a campground housing about 5000 of the protesters in an apparent attempt to keep them inside and prevent more violence.
More for Africa
Leaders brought a variety of proposals and, this year, shared centre stage with Irish rock star Bono, the lead singer of U2, who heavily lobbied some of the world's richest nations to do more for Africa.
Blair, the meeting's host and first to arrive at the heavily fortified golf resort, said he was "prepared to hold out for what is right" on his agenda.
Blair met Bush for about 20 minutes informally on Wednesday.
Blair is seeking to double African
aid to $50 billion by 2010
Diplomats would work through the night to work out agreements on deals but progress was being made on climate change, said Ian Gleeson, a Downing Street spokesman.
"We're moving in the right direction," Gleeson said.
UN in Iraq
Russian President Vladimir Putin is seeking the group's support for a wider role for the United Nations in Iraq and may propose a possible exit timetable for the US, the Kremlin said.
Bush defended his handling of Iraq and the treatment of prisoners at the US prison at Guantanamo Bay.
He sought less aid for Africa than Blair wanted and levelled renewed criticism at the Kyoto Protocol on global warming.
Bush earlier said he recognised that human activity had contributed to climate change.
But he stood by his rejection of the Kyoto treaty, calling instead for more cooperation on cleaner fuels.
Bush stood by his rejection of
the Kyoto Protocol
The United States is the only G8 member not to ratify the agreement, which took effect in February.
Faryar Shirzad, a top Bush foreign policy aide, said final touches were being made on a summit statement for release later in the week that would unanimously emphasise "common ground" on climate control - without detailing remaining differences.
As part of the African agenda, Bush, Blair, German Chancellor Gerhard Schroeder and Canadian Prime Minister Paul Martin held separate meetings with Bono.
Blair has challenged G8 countries to double aid to Africa to $50 billion by 2010.
"A lot has been accomplished, but there is no sense that a real deal, a $50 billion number, we are not there on that," Bono said of Blair's goal.
Bush's proposal for US aid was
criticised for falling short
Blair also made a joint appearance with Bono and musician Bob Geldof, the organiser of last weekend's Live 8 concerts that were held to pressure G8 leaders to do more to fight poverty and disease in Africa.
Leaders' aides met behind closed doors on Blair's top issues. Besides his call for doubling aid to Africa, the British leader also wants member nations to increase their total foreign aid to the equivalent of 0.7% of their gross domestic product by 2015.
After initially resisting Blair's call, Bush announced last week that he would seek to double US aid by 2010 to $8.6 billion from $4.3 billion last year. But he opposes Blair's 0.7% of GDP target.
Anti-poverty activists said Bush's goal of $8.6 billion fell about $6 billion short of what is needed from the US to meet Blair's $50 billion target.