I want to thank the members of Congress who are here. I appreciate the members of the diplomatic corps who have joined us today. I want to pay a special tribute to a friend of mine from Texas who has done a superb job as the Chairman of the U.S. Holocaust Memorial Council, and that's Fred Zeidman.

My administration shares a strong commitment with the AJC to make sure relations between Israel and America remain strong. We have so much in common. We're both young countries born of struggle and sacrifice. We're both founded by immigrants escaping religious persecution. We have both established vibrant democracies built on the rule of law and open markets. We're both founded on certain basic beliefs, that God watches over the affairs of men, and that freedom is the Almighty God's gift to every man and woman on the face of this earth. (Applause.) These ties have made us natural allies, and these ties will never be broken. America's commitment to Israel's security is strong, enduring and unshakable.

I'm looking forward to my meeting with Prime Minister Olmert in a couple of weeks. And as he comes to America, I cannot help but think about my friend, Ariel Sharon. Ariel Sharon is a friend who remains in our thoughts and prayers. He is a man of courage, and a man of peace. And so tonight we pray for his recovery; we rededicate ourselves to the cause to which he devoted his life, the peace and the security of Israel.

As you know, I'm a strong believer in democracy and free elections, but that does not mean we have to support elected officials who are not committed to peace. Hamas has made it clear that they do not acknowledge the right of Israel to exist, and I've made it clear that so long as that's their policy, we will have no contact with the leaders of Hamas. Democratically leaders [sic] cannot have one foot in the camp of democracy and one foot in the camp of terror. Hamas must accept the demands of the international community to recognize Israel, disarm and reject terrorism, and stop blocking the path to peace.

Many of the AJC leaders who have come to know me understand how my thinking was profoundly affected by the attacks on our country on September the 11th, 2001. The security of our nation is foremost in my mind. I vowed that day and I vow to you today that the United States of America will stay on the hunt and bring the killers to justice.

And one of the lessons of September the 11th is that this nation must take threats seriously before they fully materialize. (Applause.) And I saw a threat in Saddam Hussein. He had invaded a neighbor, he had used weapons of mass destruction against his own people, he had the capability of making weapons of mass destruction, he harbored terrorists, he was shooting at U.S. aircraft. He was a threat, and the world is better off without Saddam Hussein in power.

Our goal in Iraq is to have an ally in the war on terror and to help that young country establish an Iraqi-style democracy. Last December, 12 million people defied the car bombers and the killers and the terrorists, and said, that, we want to live in liberty. Recently a unity government has formed in Iraq. They reached an agreement on their top leadership posts. This new government represents a turning point in Iraq, a new chapter in our engagement there, and an opportunity for progress.

We will form a new partnership with these leaders; we will adjust our methods to support their priorities. We will strengthen our mutual efforts to achieve victory.

But I want you to understand that the new government is yet another blow to those who hate liberty. First, it will deny the terrorists their immediate aim of turning Iraq into a safe haven from which they can plot and plan attacks against the United States and our allies. And secondly, a democratic Iraq will be a major blow to the terrorists' hateful ideology, sending a powerful message across the region that the future of the Middle East belongs to freedom. The only way we can lose in Iraq is if we lose our nerve, and I am not going to lose my nerve.

The AJC, the American government, and most of the nations of the world are concerned about Iran. We're concerned because the Iranian regime is repressing its people, sponsoring terrorists, destabilizing the region, threatening Israel, and defying the world with its ambitions for nuclear weapons. America will continue to rally the world to confront these threats.

We're making progress. The first goal is to reach a common objective, and the objective amongst America, our European allies, Russia and China is to deny Iran a nuclear weapon. I spent time with Chancellor Merkel yesterday talking about this important issue. I can assure you we have a strong ally in Chancellor Merkel when it comes to uniting the world to speak with one clear voice.

We will continue to press the Iranian government to comply with the IAEA, as well as U.N. Security Council resolutions. America respects and admires the people of Iran. We respect their history and culture. We respect their right to choose their own future and win their own freedom. And America looks forward to the day when our nation can be closest of friends with a free and democratic Iran.

Before I introduce the Chancellor, I do want to talk about another subject that I know is important to you, and it's important to me, and that's Darfur. Last weekend, thousands rallied on our National Mall to call for justice in Darfur. And among the speakers was a man who understands the meaning of evil. You know him well. And it was Elie Wiesel put it this way: "We refuse to be silent because silent helps the killer, never his victims."

America is not silent. The United States is the only country to have called the crimes taking place in Sudan what they are: genocide. To end these atrocities, we've developed a clear standard. First, there must be a political course. Right now, as we speak, we're negotiating to bring a political settlement so that all sides will lay down their arms, a settlement between the government and the rebels. These conversations are taking place in Abuja.

But, as well, we must understand that the rape and the murder and the suffering must be stopped, and that's why I believe strongly that we must augment AU forces with a blue-helmeted U.N. force, with a NATO overlay, so that we can send a clear message to the leaders of Sudan: We will not tolerate the genocide taking place in that country.

My remaining time in office, I look forward to working with AJC leaders. I appreciate your steadfast strength when it comes to dealing with terror. I appreciate your strong belief in the power of liberty to transform the world we have. I look forward to working with you to continue to lay the foundations of peace, so that generations after our time will look at all of us and say, job well done.

And now it's my pleasure to introduce a leader who understands the importance of freedom. Angela Merkel grew up in East Germany during the dark days of the Cold War. She understands what it means to live in a free society. She understands the power of liberty. She's a straightforward person; she tells me what's on her mind. She's a woman of good judgment. She's a strong leader. It's my privilege to welcome her here, and to our friends at the AJC.

The Knesset will mark a special day dedicated to Theodor Herzl on Monday evening, in accordance with a law passed two years ago. Prime Minister Ehud Olmert said during a speech that "we must ensure that there will be a proven Jewish majority in the State of Israel, otherwise the term Jewish state becomes empty of meaning. The obligation of the national leadership is to be responsible to the vision of Herzl and to ensure a Jewish majority in the State."

Olmert said that "this special Knesset session is dedicated not only to marking Herzl's birthday but also the discussion of his heritage. The Law of Zion was passed in the Knesset in order to ensure that the heritage and vision of the State's founding father is preserved. As a journalist he covered the Dreyfus trial and was seriously shocked by the anti-Semitic wave that washed over France."

'No hope in exile'

"Through his sharp senses he realized that the Jewish nation has no hope and that there is no alternative to establishing the State
of Israel. He didn't invent Zionism, which existed before him, but he turned the dream into a political destination and the dreamers into a national movement. We must live as one people, connected not only to all of the scattered Jewish nation, we must lived as united nation here too. That is Herzl's vision. His vision, that the Jewish nation has an independent state, was realized, but the mission is not over," added Olmert.

Knesset Member Binyamin Netanyahu said that "Herzl was a visionary, not a dreamer. He was not only a prophet of the revival but also saw the danger. He said that if the Jews don't return to their land we will be annihilated. Herzl wrote about the Holocaust at least 30 times, and was thought of as a madman as a result. The threat to destroy us which saw then has not passed. We must become unified in the face of the element threatening our national existence. We must unite where we can unite and dedicate the necessary sources in order to stand in the face of the danger. We must be Herzl's students in this sense."

Theodor (Binyamin Ze'ev Herzl) was born on May 2 1860, and passed away on July 3, 1904.

Israeli Arab Knesset (parliament) members slam the result as a show of "Racism," local daily Yedioth Ahronoth reported. United Arab List-Ta'al Chairman Ibrahim Sarsur was quoted as saying that "it is unfortunate and shocking that there is still such a large percentage among the Jewish people who do not believe in full partnership between the Jewish majority and the Arab minority."

Meanwhile, members of ruling party Kadima also expressed their concern over the survey's findings.

Kadima Knesset member Menahem Ben-Sasson, a history professor, said that "the attitude toward minorities is worrying and requires turning the attention and resources to understanding their life, culture and history as a step for developing mutual relations based on respect."

The survey was in preparation for a conference to be held on Wednesday sponsored by Israeli President Moshe Katsav. Currently, about 1.3 million Arabs, accounting for a fifth of the overall Israeli population, live in the Jewish state.

The US and EU suspended direct funding to the Hamas government early last month, leaving 165,000 public employees of the Palestinian Authority (PA) unpaid so far this month. According to a Brussels document, the crisis in Gaza and the West Bank could deepen in the next few months, leading to "greatly increased unemployment and poverty levels, and possibly the breakdown of law and order".

The "quartet" of peace mediators - the EU, US, Russia and UN - will discuss in New York tomorrow plans put forward by Britain and France for the "international mechanism" to bypass both Hamas and President Abbas and provide funds and aid through bodies such as the World Bank, IMF or the UN itself.

But Washington has resisted the idea of paying overdue salaries to workers in essential services such as health and education. Its tougher stance, with Israel's backing, is seen by some Palestinians as not so much an effort to change Hamas policies as to change the regime.

Benita Ferrero-Waldner, EU external affairs commissioner, who was in Egypt at the weekend, said: "We do hope there's a chance for a common agreement on this issue." She refused to set a deadline but admitted that the humanitarian crisis among Palestinians was worsening.

Ms Ferrero-Waldner confirmed that the EU, which in the past provided half the PA's aid, or €500m (£342m) a year, plans to release €34m in humanitarian aid to be channelled through agencies, but officials suggested it could unblock other funds if the quartet talks failed. Russia is sending £5.4m for Palestinian health and education, using Mr Abbas as a conduit.

The draft British proposal for the internationally administered fund said that "without sufficient revenues there is a risk the PA will not be able to deliver basic services. This could have serious consequences for living standards, political stability and the humanitarian situation".

Last week, 36 aid agencies issued a joint report warning they are incapable of handling the funding crisis.

The EU plan is to use the Palestinian president as a liaison point for delivering pooled funds via the World Bank or IMF to the Hamas-led PA, rather than placing it under his control. "The international mechanism would enable us to control and deliver health and education funds," Ms Ferrero-Waldner said.

On Saturday Mr Abbas's advisers said Hamas had again refused to change its policy towards Israel, renouncing violence, recognising the Jewish state and standing by past peace deals. The EU and US have reaffirmed that these are absolute conditions for dealing directly with the PA.

Ms Ferrero-Waldner, who sanctioned the release of €120m in February, said a further €125m was blocked. "There might be some salaries paid for health and education but it's not yet clear and it might have to go through the World Bank." Saying the EU was "not abandoning the Palestinians", she insisted Israel should use the international mechanism if necessary to pay withheld tax and customs revenues worth €40m a month to the PA.