The new Palestinian government faces a challenge to its authority from terrorists, but the deadly bombing in Tel Aviv need not dim the best hope in years for a Middle East peace deal, Secretary of State Condoleezza Rice (search) said Monday.

"There are going to be ups and downs in this process; it's not going to be a straight line," Rice said en route to a meeting in London with newly elected Palestinian President Mahmoud Abbas (search) and representatives of European and Arab countries.

All sides have held their breath since Friday's suicide bombing outside a karaoke club in Tel Aviv, waiting to see if Israel pulled away from the peace process or if Abbas was powerless to stop further attacks.

Rice praised what she called "considerable maturity" in the Israeli and Palestinian responses.

"I don't think we are in the same old pattern," she said.

She also made clear the United States expected Abbas to get tougher.

"Obviously, when you have Palestinian Islamic Jihad (search) taking responsibility, then something needs to be done about that because they are clearly challenging directly the Palestinian Authority (search)," Rice told reporters.

U.S. leaders believe Palestinian violence and Israeli crackdowns and settlement activity have delayed progress in a peace framework the United States helped lay out in the Clinton administration.

The Bush administration has tentatively embraced Abbas as a potential peace partner after the death of Yasser Arafat (search), the Palestinian leader whom President Bush wrote off early in his first term.

Rice went to Abbas' West Bank headquarters on her first trip abroad as Bush's chief diplomat, and Bush has invited Abbas to the United States this spring.

The one-day British-led conference is meant to shore up political and financial support for Abbas' government and underscore international insistence that he root out both terrorists and petty crooks.

Bush has pledged $350 million for the Palestinians this year, although Congress has not signed off on that. None of the money would go directly to Abbas' Palestinian Authority.

While in London, Rice will also meet with European diplomats engaged in a stop-and-start effort to keep Iran from developing a nuclear weapon. After insisting on a hard line with Iran, the Bush administration is considering a European proposal to offer modest economic incentives to Tehran.

European leaders pressed the issue in meetings with Bush last week, and the president was receptive because he is now convinced that the Europeans are committed to ending Iranian nuclear weapons plans, administration officials said.

"There was firmness there that I think everybody recognized," Rice said. "We are considering, the president is considering, what options he might have to support the European efforts."

On her own trip to Europe earlier in February, Rice got insistent requests from Britain, France and Germany to offer clear U.S. support for the European talks.

Rice had planned to travel to the Middle East following the London conference, but she abruptly postponed the visit amid disagreement with Egypt over the jailing of a political opposition figure.

Egyptian President Hosni Mubarak (search) called Saturday for freer elections, but Rice did not reinstate her plans to visit Egypt this week. Mubarak has ruled for nearly a quarter-century.

Rice had also planned to visit Saudi Arabia, which like Egypt is an ally singled out by Bush in his State of the Union address to "show the way toward democracy in the Middle East."

The administration points to Abbas' election last year as one of several hopeful signs that democracy and reform are taking hold in the region.

It is not clear that Abbas can build and maintain an effective government while skirmishing with terrorists and naysayers among his own people.

Other countries must help, including by donating money to the Abbas government, Rice said.

"The strengthening of the Palestinians on the economic front, so that there is something to show for the Palestinian people from a Palestinian Authority that is dedicated to peace, is an important part of getting a better environment in the Palestinian territories," Rice said.