"Israel plans to remove certain military installations and all settlements from Gaza, and certain military installations and settlements from the West Bank. These are historic and courageous actions. If all parties choose to embrace this moment, they can open the door to progress and put an end to one of the world's longest-running conflicts," Bush said.
Sharon said the withdrawal of military units and about 7,500 Jewish settlers from Gaza would have far-reaching benefits.
"[The Gaza withdrawal] will improve Israel's security and economy and will reduce friction and tension between Israelis and Palestinians. My plan will create a new and better reality for the state of Israel, and it also has the potential to create the right conditions to resume negotiations between Israel and the Palestinians," Sharon said.
The U.S. president recognized the permanence of at least some Jewish settlements -- not in Gaza, but in the West Bank near Jerusalem, where more than 200,000 Jewish settlers now live. He said Palestinians and their descendants who lost their land in Israel in 1948 should eventually be settled in a Palestinian state, not back in Israel.
"In light of new realities on the ground, including already existing major Israeli population centers, it is unrealistic that the outcome of final status negotiations will be a full and complete return to the armistice lines of 1949," Bush said.
Under the armistice of 1949, Israel's Arab neighbors recognized temporary boundaries for Israel that did not include the West Bank or Gaza. Israel retook those territories in the 1967 war as it drove out armies from Jordan and Egypt.
Bush expressed concern about a security barrier that Sharon is erecting, which is intended to limit militants' access to Israel: "The barrier being erected by Israel as a part of that security effort should, as your government has stated, be a security rather than political barrier. It should be temporary rather than permanent, and therefore not prejudice any final status issues, including final borders."
Bush also said any future Palestinian state should be "viable, contiguous, sovereign, and independent."
Nevertheless, Bush's acceptance of permanent Jewish settlements in the West Bank drew an immediate and hostile response from the Palestinians.
Palestinian Authority President Yasser Arafat denounced the agreement even before it was announced, saying it would signal "the complete end of the peace process."
Palestinian Prime Minister Qurei, speaking from Ramallah in the West Bank, said Palestinians could never accept such a solution.
"We are the Palestinians. We reject that. We cannot accept it. We refuse it, and we are committed only to the international legitimacy, to the international resolution, to the [UN] Security Council resolution, to the road map [to peace]," Qurei said.
Qurei called on the so-called Quartet that stands behind the "road map" peace plan -- the European Union, United Nations, United States, and Russia -- to convene an international conference to discuss what he called the "neglect of Palestinian rights."
UN Secretary-General Kofi Annan criticized the U.S. stance through a spokesman. The spokesman said the secretary-general believes all unresolved details of a final Middle East peace deal should be left to the two sides to negotiate and should be based on relevant UN Security Council resolutions.
Raeed Tayeh, the communications director of the advocacy group American Muslims for Jerusalem, said the status of the peace process may not be as dire as Arafat says it is. But he told RFE/RL that agreeing to legitimize some settlements is an enormous -- and detrimental -- policy shift for the United States.
"It is the biggest blow to the peace process since it broke down in 2000, at least,” Tayeh said. “The damage that Bush has created today is more devastating than all of the violence that has gone on in the past 3 1/2 years, because that violence really hadn't changed policy on either side. It was just tit-for-tat, for the most part."
Tayeh conceded that similar proposals have been suggested by previous U.S. presidents, including Bush's immediate predecessor, Bill Clinton. But he emphasized that they were put forward merely as negotiable items, not firm stands by the United States.
By aligning his administration more closely with Sharon's government, Tayeh believes Bush has abandoned the long-standing U.S. role as an honest broker in the Middle East -- a role in which each side trusted in Washington's evenhandedness.
"[The United States has] squarely gone from being a peace broker to a real estate broker. And that is dangerous for [the United States], it is dangerous for the Middle East, and I wouldn't be surprised if you see some radical reaction from the Arab world and the Palestinians," Tayeh said.
Tayeh said he should not have been surprised by Bush's shift. He accused the current U.S. administration of acting unilaterally many times since it came into power in early 2001, and that denying Palestinians one basis for negotiations is consistent with that behavior.
"It really shows the arrogance of [Bush] and his administration in thinking that they and Israel can work out a deal that would affect the lives of the Palestinians and negotiate away their legitimate rights that the world has recognized and that this peace process is supposed to address. The Palestinians may very well have agreed to such concessions through the course of negotiating with Israel, but the president is preempting any final-status negotiations," Tayeh said.
Tayeh also complained that the Bush administration is siding with Israel on another important issue -- rejecting the right of Palestinians now living in refugee camps to eventually return to their homes within Israel once peace is achieved.
This is a goal that Palestinians will never give up, Tayeh said. He said the issue of settlement might possibly be a matter of negotiation -- for example, if Israel ceded some lands to Palestinians in exchange for keeping certain Jewish settlements.
But the right of return, he believes, will never be negotiable.