President Bush condemns Wednesday's suicide bomb attack in Israel that killed at least 15 people and left more than 90 injured.
Israelis say the attack shows Palestinians are not serious about stopping the violence.
President Bush says Palestinian leader Yasser Arafat must do more to stop attacks like Wednesday's bombing in the Isreali town of Netanya.
"I condemn it in the most strongest of terms," he said. "I call upon Mr. Arafat and the Palestinian Authority to do everything in their power to stop the terrorist killing because there are people in the Middle East who would rather kill than have peace."
Speaking in the southern state of Georgia, Mr. Bush says there can still be peace in the Middle East, but only if Palestinians stop attacks against Israeli civilians.
"It is awfully hard to realize there can be peace in a place like the Middle East," he said. "My heart breaks for those innocent lives that are lost on a daily basis, and today there was another suicide bomber who murdered innocent Israelis. This callous, this cold-blooded killing must stop."
The Islamic militant group Hamas has claimed responsibility for the blast. Israeli Prime Minister Ariel Sharon's office says the attacks show that Palestinian leaders have no intention of reaching a U.S. backed cease-fire drawn-up by CIA Director George Tenet.
Speaking earlier Wednesday before the bombing, President Bush said he was optimistic that Mideast envoy Anthony Zinni was making good progress toward the cease-fire plan.
"The most important thing for my administration is to work with both parties to make progress on a settlement in the area," he said. "And the first stage of any progress is going to be an agreement on what is called the Tenet agreement, which is the security arrangements. And I know we are making very good progress. Whether or not we are able to sign an accord soon or not remains to be seen. But progress has been made."
The president tried to downplay Mr. Arafat's absence from an Arab summit in Lebanon saying General Zinni will continue to work with both parties, regardless of whether they are going to Beirut. Mr. Arafat decided not to attend that meeting because Israeli officials said they might prevent his return to the West Bank.
That meeting is discussing a Saudi peace plan that has Arab leaders offering to normalize relations with Israel in exchange for Israel's pulling out of the West Bank and Gaza Strip. The Saudi initiative which is backed by both the United States and the European Union also calls for the right of return for all Palestinian refugees.