U.S. President George W. Bush on Thursday called Israeli settlement expansion an "impediment" to revived peace efforts in rare criticism of the Jewish state less than a week before his first presidential visit there.

In an interview with Reuters, Bush voiced optimism for securing an Israeli-Palestinian peace deal by the end of 2008, a goal set at November's Annapolis conference that has been viewed with widespread skepticism.

He also acknowledged that obstacles remained after decades of Middle East conflict.

Bush said he would use his trip to keep pressure on both sides, including making clear to Israelis his concern about Jewish settlement activity. Peace talks ahead of Bush's visit have been soured by disputes over continuing Jewish settlement construction on occupied land.

"I will talk about Israeli settlement expansion, about how that is, that can be, you know, an impediment to success," he said. "The unauthorized outposts for example need to be dismantled, like the Israelis said they would do."

Palestinian officials welcomed Bush's swipe at Israeli settlement building.

Asked about Bush's comments, Israeli government spokesman Mark Regev said: "Israel is committed to meeting all our obligations under the road map and if the Palestinian side moves similarly on its commitments, I believe there is a real chance for substantive progress in the coming months."

Talks launched at the U.S.-sponsored peace conference in Annapolis have bogged down since Israel announced plans to build hundreds of new homes in an area near Jerusalem known to Israelis as Har Homa and to Palestinians as Jabal Abu Ghneim.

Israel has responded to the protests over settlements by pressing the Palestinians to meet their road map commitments to rein in militants as a condition for establishing a state.

JAN. 8-16 TRIP

Bush said his January 8-16 trip, which starts in Israel and the West Bank and includes stops in Saudi Arabia, Egypt, Kuwait, Bahrain and the United Arab Emirates, was "absolutely" in part about containing Iran's influence.

Bush said that on his tour he expects questions about a U.S. National Intelligence Estimate last month that concluded Iran had stopped its nuclear weapons program in 2003.

"I will clarify to them that the NIE means that Iran is still a danger," he said.

Bush's trip follows a U.S.-hosted conference last month in Maryland, where Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas pledged to try to forge a peace agreement by the end of 2008.

He will try to shore up fragile peace efforts despite doubts about chances of a deal before he leaves office in January 2009 that would lead to creation of a Palestinian state.

Bush's hands-off approach to Middle East peacemaking during almost seven years in office has raised doubts about his newfound commitment. His planned trip to the region appears intended to allay such concerns.

But he made clear he had no intention of trying to impose timetables on the two sides. He also gave no sign that he planned the kind of sustained personal involvement he had shunned after his predecessor, Bill Clinton, failed to broker a peace accord in the twilight of his presidency in 2000.

Asked whether he would hold three-way talks with Abbas and Olmert during his visit, Bush said, "I don't know. It's not on the calendar now. But there will definitely be substantial talks with the Israelis and the Palestinians."

Bush's Middle East trip comes as his room for maneuver is limited by the unpopular Iraq war, now in its fifth year.

Abbas is weakened by the fact he effectively rules only in the West Bank while Hamas Islamists control Gaza. For his part, Olmert's popularity is low and his governing coalition weak.

Still, Bush remains optimistic.

"I feel good about it," Bush said when asked about the prospects for a deal by the end of this year.

He said such a timeframe "may not be a comfortable calendar for the two parties that actually have to negotiate the deal." But he added, "Both leaders ... understand this is a great opportunity to define a state and the fact that I'll be leaving office 12 months from now serves as a backstop."