U.S. and Israeli diplomats asserted Wednesday that Palestinian leaders cannot assume their proposed unity government will draw international acceptance unless they renounce terrorism and accept Israel's right to exist.

Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni responded cautiously to Palestinian efforts to resolve an eight-month political standoff that has frozen vital foreign aid.

"We will see what the outcome is here," Rice said of the continuing efforts by the radical Hamas group and the moderate Fatah party to form a coalition Palestinian government.

She said the moderate leader, President Mahmoud Abbas, "is someone with whom we can work and with whom we are working." But she added that a Palestinian coalition must adhere to internationally accepted principles of recognizing Israel, renouncing violence and accepting previous agreements between Palestinians and the Israelis.

Those are the "very essential elements" of a solution, she said. "It's hard to have a partner for peace if you don't accept the right of the other partner to exist."

Livni said Abbas "has to decide whether the Palestinian Authority will operate on his terms or on the terrorists' terms."

Livni met with White House and State Department officials Wednesday as attention in the volatile Middle East shifted to Palestinian humanitarian and political crises following Israel's summer war with Hezbollah militants in Lebanon.