The death of Palestinian leader Yasser Arafat a month ago appears to have created a new atmosphere for possible renewal of peace efforts in the Middle East. Palestinians are scheduled to elect a new leader next month, and Israel has signaled it is willing to cooperate with a more moderate Palestinian president.

President Bush says, in his second term, he is determined to reinvigorate the Middle East peace process, with the goal of two states, Israel and Palestine, living side-by-side in peace and security.

During a recent speech in Canada, Mr. Bush said it is a time of change and hope in the region. "We seek justice and dignity, and a viable independent and democratic state for the Palestinian people. We seek security and peace for the state of Israel, a state that Canada, like America, first recognized in 1948. These are worthy goals in themselves, and by reaching them, we will also remove an excuse for hatred and violence in the broader Middle East," he said.

Israeli Brigadier General Michael Herzog has participated in several major peace negotiations with the Palestinians, and is currently a visiting fellow at the Washington Institute for Near East Policy.

General Herzog says the most important first step by both sides, after more than four years of violence, is to create an atmosphere that is stable and calm. "It is the establishment of an environment free of the devastating effect of terrorism, because if you have an environment that is violence heavy, it will make it extremely difficult, if not impossible, for all parties to proceed. It puts a lot of pressure on decision-making on both sides, and I think, if you want both democratization on the Palestinian side and a smooth Israeli disengagement from Gaza, you need a stable calm," he says.

Israeli leaders have indicated that, if Palestinians elect a new president who is opposed to violence, the military is likely to coordinate a planned withdrawal from the Gaza Strip and small parts of the West Bank with Palestinian security forces.

The main Palestinian candidates are former Prime Minister Mahmoud Abbas, who currently is head of the Palestine Liberation Organization (PLO), and Marwan Barghouti, who is currently in an Israeli jail after being convicted of involvement in the murder of five civilians in terror attacks.

Mr. Abbas, who is 69-years-old, has rejected violence as counter-productive. Mr. Barghouti, who at 45 appeals to young Palestinians, was a leader in the current uprising against Israeli occupation.

Two recent polls show the race is virtually tied, while a third poll gives Mr. Abbas a significant lead.

Robert Satloff is the executive director of the Washington Institute for Near East Policy.

Mr. Satloff says Palestinian political reform and a successful Israeli pullout from Gaza should come before any serious negotiations on a permanent peace agreement. "Do those things first, Gaza disengagement and get the Palestinian house in order. Then, you are in a much better position to re-engage in the right way in high-level negotiations. Not only that, but if you do it the other way, you are sure to fail. Because if Gaza fails, there will not be a single Israeli constituency for a significant negotiation over the West Bank. The Palestinian test is in Gaza," he says.

Egypt's ambassador to the United States, Nabil Fahmy, agrees that, following the death of Yasser Arafat, reform of the Palestinian Authority is essential.

Ambassador Fahmy says, however, there needs to be a parallel process that rewards Palestinian efforts to bring about change. "Reform is important, but no Palestinian establishment will succeed, if there is not a political dividend that will actually give it credibility as it reforms itself. So, I would argue that, one, pursuit of reform, but there has to be a peace process that goes hand-in-hand with that. I would argue that we need to make the Gaza withdrawal a success, but that really is contingent on it being a cooperative process," he says.

The Bush administration announced recently it is lifting a long-standing ban on direct U.S. aid to the Palestinians, and will donate more than $20 million in economic aid to the Palestinian Authority.

The aid is to be used to help conduct the January elections and pay for several hundred international observers to monitor the voting.

U.S. officials say the decision follows positive steps by the Palestinians in the transition to new leadership, and the commitment made to the electoral process.