Israel has made some progress toward lifting restrictions on the way Palestinians can move around the West Bank territory abutting the Jewish state, but roadblocks, checkpoints and other security measures still stunt Palestinian economic growth, Secretary of State Condoleezza Rice said Tuesday.

With time running out on the Bush administration's plan for a Mideast peace framework this year, Rice made essentially the same twin challenges to Israel and the Palestinians that she has made on more than 20 largely fruitless trips to the region during her tenure: Israel should loosen its grip on the West Bank and the Palestinians should tighten their rein on militants.

Rice also said as she has many times before that Israel should stop building new homes for Jewish settlers in disputed territory. She pledged to use her remaining three months in office to work toward a peace deal.

"The parties need to redouble their efforts," Rice said in an address to a Palestinian investment forum at the U.S. Chamber of Commerce headquarters in Washington.

Palestinians must continue to "dismantle the infrastructure of terrorism and to promote an atmosphere of tolerance."

"Israel must also halt settlement activity which can be seen as prejudging the outcome of negotiations and undermining its negotiating partner," she said.

"And while there have been some lowered restrictions to access and movement, more progress needs to be made in order for Palestinian businesspeople and workers to be able to conduct business in an environment in which they can thrive," Rice told the audience, which included Palestinian Prime Minister Salam Fayyad.

Rice's remarks inviting business investment in the West Bank largely ignored the many complications that have effectively put a peace pact out of reach for now: President Bush's dwindling time in office, preoccupation with internal politics in both the United States and Israel, the global financial crisis, and the now-entrenched split in Palestinian leadership.

Her comments came after Israeli Prime Minister-designate Tzipi Livni's Kadima Party initialed a partial agreement on bringing the Labor Party into a new governing coalition, a first step in forming a new government that some fear has distracted from the peace process.

Livni, currently foreign minister, has been the chief Israeli negotiator in talks with the Palestinians that began last November at the U.S.-hosted Annapolis conference with the goal of reaching an agreement by the end of 2008.

Despite the ongoing negotiations, there has been little tangible progress leading many to believe that the Annapolis goal is no longer realistic, particularly with Livni and other Israeli officials distracted by trying to form a new governing coalition.

State Department spokesman Sean McCormack allowed that there had been an impact on the negotiations, but stressed it had not affected U.S. resolve.

"Once you do get an Israeli government that is fully up and running and ready to actively push forward on that front, we'll see where those discussions lead," he told reporters.

In her speech, Rice vowed that she would continue to work hard to meet the year-end deadline, although she acknowledged that "there are many challenges" still to overcome.

"We must do everything that we can with the negotiating partners to get to the Annapolis solution and that would be to find an agreement between these parties by the end of the year," she said. "It is very difficult, there's a hard road ahead, but if we do not try, we almost certainly will not succeed."

"Until that moment when I leave office, I will leave no stone unturned to see if we can finally resolve this conflict," Rice said.