President Bush on Wednesday praised Israeli Prime Minister Ariel Sharon's (search) plans to withdraw Israeli forces and settlements from the Gaza Strip (search) and from parts of the West Bank.

"These are historic and courageous actions. If all parties choose to embrace this moment, they ... can put an end to one of the world's longest running conflicts," Bush said in a joint news conference with Sharon from the White House.

Expressing his desire for peace, Sharon said, "Our people desire to be known for its achievement in the fields of culture, science and technology rather than on the battlefield."

But Palestinian officials expressed dismay over the news. "The Palestinian leadership warns of the dangers of reaching such an accord, because it means clearly the complete end of the peace process," a statement said. 

Sharon had warm words for Bush, saying, "I have never met a leader as committed as you are to the struggle for freedom and the need to fight terrorism wherever it exists."

The Israeli leader said that his plan, under which troops and settlers would be pulled out from Gaza, will "reduce friction and tension between Israelis and Palestinians."

Although Sharon called his plan one for "disengagement," under it some West Bank settlements (search) would remain.

Bush voiced his support for the plan, including the retention of some West Bank settlements. 

In what appeared to be a major shift in U.S. policy, Bush said, "In light of new realities on the ground including already existing Israeli population centers, it is unrealistic to have a full return to the 1949 line."

Israel seized the West Bank, Gaza and East Jerusalem in the 1967 war. Palestinians see settlements in these territories as an illegal encroachment on land they want for a future state, and refugees demand to return to the land they fled during the 1948-49 war.

Palestinian Reaction: 'We Cannot Accept That'

Palestinian Labor Minister Ghassan Khatib (search) told Fox News that the plan to pull out of Gaza and parts of the West Bank was intended to provide cover for Israel's plan to bolster other settlements in the West Bank, where the overwhelming majority of Israeli settlers live. He said that reinforcing and expanding these settlements would engender "more terrorism." 

"What we just heard is not only disappointing and not only destructive ... but it is also dangerous," Khatib said after Bush and Sharon spoke.

Minutes after the press conference, Palestinian Prime Minister Ahmed Qureia (search) harshly criticized Bush's stand.

"He is the first president who has legitimized the settlements in the Palestinian territories when he said that there will be no return to the borders of 1967," Qureia said. "We as Palestinians reject that. We cannot accept that. We reject it, and we refuse it."

Qureia said the Palestinians cannot be left out of the process.

"These issues can be determined only through negotiations and cannot be determined through promises from the leader of this or that country," he said. "This can be decided only by the Palestinian leadership." 

Earlier, Palestinian leader Yasser Arafat (search) said the peace process would be dead if the United States assured Israel it can keep some key West Bank settlements and would not have to absorb Palestinian refugees. 

Palestinian leaders held an emergency meeting Wednesday to discuss Sharon's meeting with Bush. A statement from Arafat's office on his and the Palestinian leadership's behalf said U.S. assurances on the West Bank settlements and the refugees would ruin future negotiations between Israel and the Palestinians. 

The assurances would also lead to a "cycle of violence and end all the signed agreements" between the Palestinians and Israel, the statement said. 

Before the news conference, Qureia said any Israeli withdrawal must be in accordance with the "road map," an internationally backed peace plan calling for an independent Palestinian state that has been stalled in recent months. 

 "We hope the U.S. administration ... will remain committed to its responsibilities ... and not say anything that is considered a reward for a party or a side at the expense of the other party," he said. "Otherwise, there will be no peace." 

Asked whether American policy is tilted toward Israel, Bush said, "U.S. Middle East policy is tilted towards peace, and the best way to achieve peace is to fight terror."

Sharon Plan Part of Campaign to Separate Israelis, Palestinians

Under Sharon's proposal, all 21 Jewish settlements in Gaza, as well as four settlements in the West Bank, would be uprooted, as part of his plan to separate Israelis and Palestinians in the absence of progress toward a peace agreement. In return, Sharon hopes to expand five large blocs of Israeli settlements in the West Bank. 

Plans continued for a referendum on the proposal within the ruling Likud Party (search). Sharon has said he would abide by the results of the poll, which has stirred strong passions within a party that has long supported settlement construction. 

Several leading Likud figures oppose the withdrawal plan and have begun campaigning against it. 

Defense Minister Shaul Mofaz was spearheading the campaign for the proposal, his office said Wednesday. 

The party said Wednesday it was organizing two debates in the coming weeks between Sharon and Cabinet minister Uzi Landau, who opposes the plan. 

Also Wednesday, two Palestinians were lightly wounded as villagers clashed with troops in the West Bank village of Biddou during a protest over a separation barrier Israel is building that runs through local orchards. 

Youths threw rocks at troops who responded with rubber coated bullets and tear gas. 

Israel says the barrier is needed to keep Palestinian militants out of Israel. Palestinians view the barrier as an Israeli land grab. 

Bush said that it is important that this security barrier be "temporary rather than permanent and therefore not prejudice any final status issues." He also called on Israel to take into account the impact on Palestinians who are not engaged in terrorist activities.

In Gaza City some 3,000 Palestinians, including 400 gunmen, attended a rally calling for the release of jailed uprising leader Marwan Barghouti and other Palestinian prisoners. 

Barghouti, the highest ranking Palestinian captured by Israel, has been charged with being involved in attacks that killed 26 Israelis. The rally came in the run-up to the day Palestinians mark in solidarity with their prisoners in Israeli jails.

One Palestinian, identified as Ali Amar, 22, was killed when he was shot in the head by gunmen firing in the air, hospital officials said. 

The Associated Press contributed to this report.