Mr Bush is pushing Israeli and Palestinian leaders to resume talks

US President George W Bush has said he is still optimistic there will be a Middle East peace deal before he leaves office, despite stalled negotiations.

He said there was "plenty of time to get a deal done" in the 10 months left.

Palestinian leader Mahmoud Abbas broke off contacts with Israel at the weekend after its recent military offensive in Gaza killed more than 120 Palestinians.

Shortly after Mr Bush spoke, Israeli tanks entered Gaza, sparking clashes that killed a one-month-old baby girl.

Witnesses said Palestinian militants exchanged fire with Israeli ground forces when they moved into an area east of the central town of Deir al-Balah and surrounded the house of an Islamic Jihad militant.

This is a process that always two steps forward and one step back - we just need to make sure that it's just one step back US President George W Bush

Once the soldiers had withdrawn, the baby girl was found dead in the house next door to the one that had been targeted, they added.

The Israeli military said the incursion, the first since its troops withdrew from the coastal territory overnight on Sunday, was a "pinpoint" operation targeting militants.

Earlier, a rocket hit the nearby Israeli town of Sderot, causing damage in a residential area. Israeli forces launched several air and ground strikes on rocket squads and Hamas installations in retaliation, killing at least two militants.

'Long time'

Speaking after meeting Jordan's King Abdullah at the White House, Mr Bush said he was "optimistic that they can conclude tough negotiations".

"Ten months is a long time. It's plenty of time to get a deal done," he told reporters.

Israel has warned of fresh action to prevent rocket fire from Gaza An asymmetric fightIn pictures: Gaza aftermath CCTV of missile

"This is a process that always two steps forward and one step back. We just need to make sure that it's just one step back."

Israel and the Palestinian Authority have been attempting to negotiate a peace deal since the US-sponsored conference at Annapolis late last year, which set out the aim to establish an independent Palestinian state alongside Israel by the end of 2008.

The president's comments came only hours after his Secretary of State, Condoleezza Rice, held talks in the West Bank in an effort to revive the peace talks.

Ms Rice also insisted she was confident peace was still achievable this year.

Her optimism was not shared by Mr Abbas, however, who said progress could only be made if a comprehensive ceasefire was agreed, a suggestion he has made before but which has been rejected by the Israeli government.

"I call on the Israeli government to halt its aggression so the necessary environment can be created to make negotiations succeed, for us and for them, to reach the shores of peace in 2008," he told reporters in Ramallah.

Mr Abbas said no-one could justify the killings of dozens of civilians, including more than 20 children, in the Gaza Strip during Israel's recent five-day offensive, which was launched in an attempt to suppress rocket fire by militants there.

Rights groups have accused Israel of a disproportionate response

"It has always been our conviction that resolving the Israeli-Palestinian conflict cannot be achieved through violence or counter-violence, but through negotiations with terms of reference and international support," he added.

Ms Rice will meet the Israeli Prime Minister, Ehud Olmert, in Jerusalem later and will hold further talks with Israeli and Palestinian officials on Wednesday before leaving the region.

The Israeli military has warned of fresh action to prevent militants firing rockets at populated areas in southern Israel.

The BBC's Aleem Maqbool in Ramallah says the Middle East peace process remains very much derailed with the same old obstacles stopping it from getting back on track.

An agreement that was supposed to be the Bush administration's legacy in the region is still a very distant prospect, our correspondent says.