The Mideast conflict dominated initial talks of leaders of the world's industrial powers gathered in the Canadian Rockies for their annual summit.

The agenda for the two-day Group of Eight meeting set by its host, Canadian Prime Minister Jean Chretien, focuses on terrorism, the world economy and African development aid.

But as leaders arrived by helicopter Tuesday after landing at Calgary's airport 65 miles away, the prime topic was the intractable Israel-Palestinian conflict and President Bush's new proposal demanding the replacement of Palestinian leader Yasser Arafat as a condition for creation of a Palestinian state.

It was the first question asked of Bush and Chretien before their one-on-one meeting Tuesday, one of several such discussions held on the eve of the summit at a remote resort surrounded by snowcapped peaks.

Bush repeated his call for new Palestinian leaders, but added that ``all parties must work for peace.''

Protesters kept far from the meeting venue stripped their clothes off outside a Gap store in Calgary and planned more disruptive marches for Wednesday, including a ``Take the Capital'' demonstration more than 2,000 miles to the east in Ottawa.

Thousands of Canadian police and soldiers surrounded Kananaskis, armed with laser-guided anti-aircraft missiles, tanks, helicopters and automatic weapons to guard against any terrorist threat.

Intent on demonstrating a united front against terrorism at the annual summit, the participants — the United States, Britain, Canada, France, Germany, Italy, Japan and Russia — prepared a joint plan to make air travel and cargo shipments safer. Underscoring the cooperative theme, Bush signed legislation before leaving Washington on Tuesday that allows the United States to participate in two U.N. terrorism initiatives.

Bush also hoped to build support for his Middle East peace initiative. Sitting next to Chretien before their meeting, he expressed support for Israel's increased incursions into Palestinian territories, saying ``everybody has a right to defend themselves.''

``What Palestinians need is leadership — elected leadership,'' Bush said.

Chretien supported Bush's push for democratic elections but stopped short of endorsing the president's call for Arafat's ouster.

``I'm told there will be elections before the end of the year. We hope it will be a real election that will produce somebody that is democratically elected,'' he said. Noting Bush wanted Arafat gone, Chretien said: ``I don't have a specific point of view on that.''

Bush also met with Japanese Prime Minister Junichiro Koizumi, who told reporters on the flight to Canada he supported Bush's ``proactive'' Middle East initiative. Koizumi said it would be a major topic of discussion.

Chretien wants the summit to produce agreement on a new plan to increase development aid for Africa. For the first time, the summit has invited outsiders — in this case four African leaders and U.N. Secretary-General Kofi Annan — to take part in the annual talks.

Annan warned Tuesday against ``unrealistic expectations'' for the New Economic Partnership for Africa Development. The initiative would target Western development aid to African countries that create conditions for foreign investment such as rule of law, good governance and stability.

Terrorism also dominates the first G-8 summit since Sept. 11, from the rigorous security in the protective zone around Kananaskis to the new measures the leaders were discussing Wednesday.

The White House said leaders would issue a joint ``action plan'' on ways to make air travel and cargo shipments more secure, while allowing for the free flow of goods.

Under the legislation Bush signed, the United States can participate in U.N. conventions to enhance efforts to prevent terrorist bombings and to choke off the flow of money to terrorist groups.

``Working together, America and the other freedom-loving nations of the world are moving towards a day when our children can live free from the fear of terrorism and free to achieve their dreams,'' Bush said in a statement.

In Calgary, a counter-summit called the G-6B, referring to the 6 billion people of the world, finished several days of talks with a statement calling on G-8 leaders to abolish the International Monetary Fund, the World Trade Organization and even the G-8 meetings because all are undemocratic.

Canadian Foreign Affairs Minister Bill Graham, who attended the closing session, agreed that there were problems that needed fixing in the WTO. But he called eliminating the global bodies unrealistic.