ANNAPOLIS, Md - With a handshake, leaders of the United States, Israel and the Palestinians agreed on Tuesday to immediately launch peace talks with the goal of reaching a final accord by the end of 2008.

President George W. Bush made the dramatic announcement at the opening of a 44-nation Middle East peace conference, with Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas standing alongside him.

Bush arranged for a handshake between the two leaders as they stood at the podium of the conference after he announced the agreement whose aim is establishing a Palestinian state that will live in peace with Israel.

The accord emerged from lengthy, last-minute negotiations between the parties on a joint document meant to chart the course for negotiating the toughest "final status" issues of the conflict -- Jerusalem, borders, security and the fate of Palestinian refugees.

"We agreed to immediately launch good faith, bilateral negotiations in order to conclude a peace treaty resolving all outstanding issues, including core issues, without exception," Bush said, reading from a joint statement. He said the two sides agreed to try to reach an agreement by the end of 2008.

Bush, making his deepest foray into Middle East peacemaking with only 14 months left in office, held talks with Olmert and Abbas before addressing the high-stakes conference, which included diplomats from Syria and Saudi Arabia and 12 other Arab states.

"The time is right, the cause is just, and with hard effort, I know they can succeed," Bush said in his centerpiece speech at the day-long conference about an hour's drive from Washington.

Bush said the purpose at the waterfront campus of the U.S. Naval Academy in Annapolis was not to conclude an accord, but instead to launch negotiations between the Israelis and Palestinians.

"The task begun here at Annapolis will be difficult," Bush said. "This is the beginning of the process, not the end of it, and much work remains to be done."

Finally embracing a hands-on approach he disdained after his predecessor Bill Clinton failed to broker a deal in the twilight of his presidency, Bush was hosting the most ambitious round of international Middle East diplomacy in seven years.

No one expects a swift breakthrough between the two sides. Olmert is politically weak at home and the Palestinians are deeply divided between those loyal to Abbas and those supporting Hamas, who violently oppose the talks.