U.S. Secretary of State Condoleezza Rice and British Middle East envoy Tony Blair say an Israeli-Palestinian peace accord is still possible by the end of the year. The two joined in a London meeting Friday of the international "Quartet" on the Middle East. VOA's David Gollust reports from London.

The Quartet convened here amid an atmosphere of skepticism about Israeli-Palestinian peace contacts and continuing violence in and around the Gaza Strip.

But both Rice and Blair, the former British Prime Minister who is now the Quartet's regional envoy, say there have been advances behind-the-scenes in the talks led by Palestinian Authority chief Mahmoud Abbas and Israeli Prime Minister Ehud Olmert.

At a news conference capping the senior level meeting of the Quartet - the United States, Russia, the European Union and the United Nations - Blair said the parties can, and must, find a way to overcome their differences.

"People look at this situation and they look at, for example, what is happening in Gaza and they look at all the challenges in it, and they say how on earth can it be put together. And my response is very simple to this," Blair said. " First of all, we have no option but to carry on working on this. It is in my view the single-most important thing that we can do to bring about a different atmosphere in that whole region, never mind to improve the lives of Israelis and Palestinians."

Rice, who goes to Jerusalem Saturday for more talks with Israeli and Palestinian officials, said she understands the mood of pessimism surrounding the peace process but that she does not share it.

"I'm not surprised that people worry that it won't happen yet again. But if you simply sit and think, well, it won't happen yet again, then you won't put in the work every day, every hour, to give the parties a chance to make it work. And this is hard work, it's labor-intensive and it's time-consuming but I believe that they do have a chance to get an agreement by the end of the year. And that's what we're going to work for every day," Rice said.

A Quartet statement, read by U.N. Secretary-General Ban Ki-Moon, urged the parties to make every effort to realize the agreement they committed themselves to at last November's Annapolis conference.

The four parties took note of some recent positive steps including the removal of some West Bank roadblocks by Israel and an improved security performance by the Palestinian Authority, but said much more remains to be done.

The Quartet expressed deep concern at continuing Israeli settlement-building in the West Bank and called on Israel to freeze all such activity, including natural growth of settlements, and to dismantle illegal settler outposts erected since 2001.

The grouping called on the Palestinian Authority to fulfill commitments to fight terrorism and condemned continuing rocket attacks from Hamas-controlled Gaza into southern Israel.

At the same time, the Quartet said it was deeply concerned about Palestinian civilian casualties from Israeli retaliatory strikes in Gaza, including the recent deaths of a Palestinian mother and four of her children.

The Quartet session was followed by a meeting of international donors to the Palestinian authority at which U.S. officials said Rice would press Arab states to make good on pledges made at the Paris donors conference last December.

U.S. officials say the Palestinian Authority faces a budget shortfall of as much as $600 million this year, and that Arab contributions have been, as one official put it: "woefully short."