SHARM EL-SHEIKH, Egypt (AFP) - US President George W.Bush wraps up his tour of the Middle East on Sunday holding further talks with key political leaders after declaring his dream of a Palestinian state.

Bush will meet Palestinian prime minister Salam Fayyad in the Egyptian Red Sea resort of Sharm el-Sheikh and will also hold talks with Jordan's King Abullah II and Pakistani Prime Minister Yousuf Raza Gilani.

On Saturday, the US leader pledged to Palestinian president Mahmud Abbas his determination to help achieve the "dream" of a Palestinian state, despite stagnant peace talks and Arab scepticism over his support for his Israel.

"I commit to you once again that my government will help achieve a dream, a dream that you have, and the truth of matter is, a dream that the Israelis have, which is two states living side by side in peace," Bush told Abbas.

The US-backed Abbas said he was working "seriously and very aggressively with the hope that we will be able to achieve this objective before the end of the year."

However, Abbas spokesman Nabil Abu Rudeina laid the blame for the slow pace of negotiations squarely on Israel, saying that "what Bush dreams should be implemented on the ground.

"Seeing is believing. We have to see tangible Israeli steps on the ground so that we can convince our people that things are going in the right direction," Abu Rudeina told AFP.

He pointed to the fact that despite US pledges to help broker a deal by the end of Bush's term in January, all final status issues remain unresolved, saying "time is running out."

Bush began his tour in Israel where he addressed parliament as the Jewish nation marked the 60th anniversary of its founding, sparking Arab anger over his perceived bias towards Israel.

"Bush has forgotten his role as the just mediator and exposed his real self," charged an editorial in Egyptian state-owned newspaper Al-Gomhuria on Saturday.

Israel and the Palestinians resumed peace talks at a US meeting in November, committing themselves to a target of reaching a deal by the time Bush leaves office. So far, they have made virtually no visible progress.

Bush, who is in Sharm for talks with world leaders before addressing the Middle East World Economic Forum, said "it breaks my heart to see the vast potential of the Palestinian people really wasted."

Bush and Abbas also voiced concern about the situation in Lebanon, where fighting last week between pro- and anti-government forces killed 65 people and pushed the country to the brink of new civil war.

Feuding Lebanese political leaders are holding Arab-brokered talks in Qatar aimed at ending the crisis, which has prevented the election of a president since November.

A meeting with Lebanese Prime Minister Fuad Siniora was dropped from Bush's agenda after the opening of the Qatar talks.

Bush arrived in Egypt on Saturday from regional powerhouse Saudi Arabia and went straight into talks with President Hosni Mubarak and Afghan President Hamid Karzai, before his meeting with Abbas.

In Riyadhi, he tried to press Saudi Arabia to raise oil output in the face of rocketing oil prices near 128 dollars per barrel, but the world's biggest crude exporter said global supply was balanced with demand.

The OPEC kingpin however revealed it had hiked production by 300,000 barrels per day this month.

A Saudi official told AFP talks with Saudi King Abdullah also focused on the Palestinian issue and Middle East peace.

King Abdullah "underlined the need for the United States to exert more efforts to prompt Israel to reach results in the negotiations with the Palestinians conducive to the establishment of an independent Palestinian state," the official said.

The WEF meeting, dubbed the Davos of the Middle East, will bring together 1,500 people, including heads of state, business leaders and ministers from 55 countries, under the theme "learning from the future."

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