President George W. Bush warned Iran of "serious consequences" if it meddles again with U.S. warships in the Persian Gulf, opening a Mideast peacemaking mission on an ominous note. He told Israel to dismantle unauthorized settlement outposts and demanded that the Palestinians halt rocket attacks from areas controlled by Hamas Islamic militants.

Bush, on his first visit as president to Israel, acknowledged widespread doubts about whether he can break through decades of distrust to achieve his goal of a major peace agreement by the end of his presidency in January, 2009.

"I'm under no illusions," Bush said at a news conference Wednesday with Israeli Prime Minister Ehud Olmert. "It's going to be hard work."

Unpopular at home, Bush got an extremely warm welcome in staunch ally Israel. With his presidency slipping away and skepticism about the seriousness of his commitment to Mideast peacemaking, Bush hopes an accord would improve a legacy tarnished by an unpopular Iraq war, economic anxieties and other problems.

Already a troubling issue for Bush, Iran jumped back into the spotlight Sunday when Iranian boats harassed and provoked three American Navy ships in the strategic Strait of Hormuz. U.S. officials said Iran threatened to explode the vessels, but the incident ended peacefully.

Bush said "all options are on the table" to protect U.S. ships. He said the Iranian boats "were very provocative and it was a dangerous gesture on their part. ... And they know our position, and that is: There will be serious consequences if they attack our ships, pure and simple. And my advice to them is don't do it."

Bush already was on the defensive about Iran because a new U.S. intelligence report contradicted White House assertions that Tehran was building a nuclear weapon. The National Intelligence Estimate found Iran halted its program in 2003 under international pressure.

Iran is a particularly sensitive subject here because Iranian President Mahmoud Ahmadinejad has repeatedly called for Israel's destruction, and Israelis wonder whether Bush has the resolve to deal with Tehran, especially in light of the new intelligence.

Saying he still regarded Iran as a dangerous threat, Bush said, "We'll continue to keep the pressure on the Iranians. And I believe we can solve this problem diplomatically."

After a red-carpet airport arrival in Tel Aviv, Bush flew by helicopter to Jerusalem for talks with Olmert and Israeli President Shimon Peres, who cautioned that peace negotiations "may be slow, but the progress can be sweet."

Olmert said Israel would not accept a peace agreement unless there is a halt to rocket attacks from the Gaza Strip, controlled by Islamic militants dedicated to Israel's destruction. The U.S.-backed Palestinian president, Mahmoud Abbas, wields authority in the West Bank but not in Gaza, meaning the Palestinian population is effectively split between two governing entities.

"There will be no peace unless terror is stopped," Olmert told Bush. "And terror will have to be stopped everywhere. He said that "Gaza must be part of the package and that as long as there will be terror from Gaza, it will be very, very hard to reach any peaceful understanding between us and the Palestinians."

The threat to Israel was underscored Wednesday when Palestinian militants in the Gaza bombarded southern Israel with rocket and mortar fire.

Bush was to fly to the West Bank on Thursday and question Abbas about just that.

"As to the rockets, my first question is going to be to President Abbas, `What do you intend to do about them?"' Bush said.

"Because ultimately, in order for there to be the existence of a state, there has to be a firm commitment by a Palestinian government to deal with extremists and terrorists who might be willing to use Palestinian territory as a launching pad into Israel."

Stephen Hadley, Bush's national security adviser, sounded pessimistic about Hamas joining the peace process.

"Nobody, unfortunately, is very optimistic that they will make that choice," Hadley said. "Hamas came to power in election; it will have to submit itself at some point to the people of Gaza in terms of their approval of the job they have done. And at this point, it's a pretty depressing situation in Hamas — in Gaza for all those people who live there."

The administration set low expectations for Bush's eight-day Mideast journey, which also includes stops in Kuwait, Bahrain, United Arab Emirates, Saudi Arabia and Egypt. Bush said it would be unproductive for him to "butt in and actually dictate the end result of the agreement."

But that did not stop him from telling Israel what to do about settlements.

"In terms of outposts, yes, they ought to go," Bush said. "Look, I mean, we've been talking about it for four years. The agreement was, `Get rid of outposts, illegal outposts,' and they ought to go."'

Israel has established some 120 settlements in the West Bank, which are home to about 270,000 Israelis. In addition, there are more than 100 outposts, most of which are tiny encampments — built by hardline activists without authorization — meant to serve as the seeds of future settlements.

The U.S.-backed peace plan known as the "road map" calls on Israel to remove dozens of outposts and freeze settlement activity, including construction in existing settlements.

Olmert repeated his pledge not to build any new settlements, but indicated Israel will continue building in major settlement blocs and east Jerusalem.

Bush was silent on Olmert's claims to the settlement blocs and east Jerusalem. This was disappointing to the Palestinians, who say all settlements are illegal.

The Palestinians want all of the West Bank and east Jerusalem for their future state. Israel wants to keep east Jerusalem and the large settlements in the West Bank under a final peace agreement.

Bush offered support to Israel on one of the core issues in the conflict. "The alliance between our two nations helps guarantee Israel's security as a Jewish state," Bush said.

Bush has referred to Israel as Jewish state in the past but the reference — here in the region — had special significance. Palestinians oppose the term, saying it rules out the right of Palestinian refugees to return to lost properties in Israel.