"But if there are facts on the ground being imposed, or an attempt to delay the issue of Jerusalem or refugees, we will fail."

Olmert announcement

His remarks come after Wednesday's announcement by Ehud Olmert, the Israeli prime minister, that he would not run in his Kadima party's leadership elections in September.

Jerusalem remains a key issue for Israelis and Palestinians [AFP]
Olmert suggested earlier this week that there was little chance of reaching the end of year deadline on a peace pact as it would be impossible to agree on the status of Jerusalem - part of which Palestinians claim as the capital of any future Palestinian state.

He had said efforts to reach agreement over borders and the future of millions of Palestinian refugees could be bridged.

Rice told reporters after the talks that "the issues are difficult and they have always been difficult, there is nothing surprising in that, but ... the goal remains the same".

Qureia and Livni have been meeting at least once a week since the Israelis and Palestinians committed to attempting to reach a comprehensive deal by the end of 2008.

However, analysts say that with turmoil among Israel's leadership, US presidential elections in November and continued unrest between the Palestinian Hamas and Fatah factions, it remains unclear how much can be achieved.