TEL AVIV - U.S. President George W. Bush arrived in the Middle East on Wednesday to celebrate Israel's 60th birthday and try to energise peace efforts complicated by a corruption scandal that could topple Prime Minister Ehud Olmert.

Bush, who faces deep doubt he can secure a deal between Israel and the Palestinians before leaving office in January, planned to hold talks with Israeli leaders and address the country's parliament during his three-day stay.

"Our two nations both faced great challenges when they were founded. And our two nations have both relied on the same principles to help us succeed. We built strong democracies to protect the freedoms given to us by an almighty God," Bush said at a red-carpet ceremony at Tel Aviv's Ben-Gurion airport.

"We consider the Holy Land a very special place and we consider the Israeli people our close friends, Shalom," Bush said.

He and First Lady Laura Bush were welcomed by a smiling Olmert and his wife, Aliza, and Israeli President Shimon Peres.

"Welcome to the new Israel, three thousand years old and going on sixty," Peres said, citing biblical roots and praising Bush for standing "by our side in sunny mornings and stormy weather".

Olmert, fighting for his political survival in the face of a police investigation into suspected bribe-taking, said on Tuesday that he and Palestinian President Mahmoud Abbas had reached "understandings and points of agreement" on some issues.

But Palestinian officials were sceptical, and one noted that the two sides "still have a long way to go".

With the clock ticking down on his administration, Bush, on his second visit to Israel this year, is trying to salvage a foreign policy legacy encompassing more than the unpopular war in Iraq.

Bush will not visit the Palestinian territories during his current trip but planned to meet Abbas in Egypt on Saturday.

Palestinians are marking their "Nakba", or "catastrophe" this week. The Nakba refers to the 700,000 Palestinians who fled or were expelled from their homes in 1948.

Olmert and Abbas agreed at a U.S.-hosted conference in Annapolis, Maryland, in November to try to reach a peace deal, including an agreement on Palestinian statehood, by year's end.

Since then, talks have faltered over Israeli settlement expansion plans in the occupied West Bank and violence in and around the Hamas-controlled Gaza Strip, where cross-border rocket fire has drawn a tough Israeli military response.