"Hopefully, at some point in time, a leadership of the Palestinian leadership will emerge which will then commit itself 100 percent to fighting off terror," Bush said as he met at the presidential retreat here with Jordan's King Abdullah II, a vital ally in the Middle East.
In a published interview, Arafat said truce talks with Palestinian militants are going well, adding that the Islamic Jihad group is ready to declare a cease-fire now and that Hamas is sending positive signals.
Arafat, however, suggested he would take no action to dismantle the two groups, despite intensive U.S. and Israeli pressure.
Israel, however, won't deal with him, and demands that terrorist groups be dismantled. Arafat rejects that; in a series of interviews, he said armed Palestinians have the right to resist.
Last week, Israel's security Cabinet decided to "remove" Arafat, which appears to give the army three options: expulsion, killing him or further isolating him in his Ramallah headquarters.
Meanwhile, Israel launched its biggest raid in the Gaza Strip in months Thursday. Commandos backed by helicopter gunships stormed the hideout of a senior member of the Islamic militant group Hamas in the Gaza Strip. There were heavy exchanges of fire, and the wanted Palestinian militant, Jihad Abu Shwairah, 34, was killed.
It was the first major Israeli ground assault in Gaza in months. Recent Israel attacks have been carried out with helicopters firing missiles at wanted militants. The use of hundreds of soldiers is an apparent signal to Hamas that Israel will not limit itself to air strikes in Gaza.
Prime Minister Ariel Sharon has said that every Hamas leader is marked for death.
In the West Bank town of Ramallah, the Fatah Central Committee met Thursday to choose candidates for 15 of 23 seats in the new Cabinet, giving Arafat virtual control over the government of Prime Minister-designate Ahmed Qureia.
It was unclear whether the Fatah leaders would present Qureia with a slate of 15 ministers, or a list of candidates from which he would pick the ministers. The remaining eight ministers would represent other Palestinian groups or independents.
Originally, Qureia wanted to form an emergency Cabinet with about eight ministers, but Fatah and Arafat vetoed that.
Arafat's first prime minister, Mahmoud Abbas, resigned Sept. 6 after power struggles with the Palestinian leader, a deadlock with Israel on a U.S.-backed peace plan and the collapse of a unilateral truce called by militant groups in June. Arafat had appointed Abbas reluctantly and under international pressure to share power.
Qureia, presently the speaker of the Palestinian parliament, has a wider political base than Abbas and has said he does not intend to undercut Arafat.
Israel and the U.S. have attempted to push Arafat to the sidelines, reports CBS News Correspondent Robert Berger, but his truce efforts are aimed at showing he's the only one who can end the bloodshed and bring peace.
"The Islamic Jihad is already ready and now we are continuing with the Hamas," Arafat told the Israeli newspaper Yediot Ahronot when asked about truce talks. "Up to now, the results are positive, there is a positive outlook from their perspective."
Arafat suggested he would take no action to dismantle the two groups, despite intensive U.S. and Israeli pressure. Asked if he would dismantle what Israel calls the "terrorist infrastructure," Arafat told Yediot: "This isn't an infrastructure, this is an opposition that you (Israel) built and you armed ... how should we disarm them? Don't your murderous acts lead to a retaliation?"
He said there are also contacts with the Al Aqsa Martyrs Brigade, a militant group loosely affiliated with his Fatah movement.
Asked about the Israeli threats, Arafat said: "Despite everything that has been, I am willing to meet" Sharon.
Qureia said once he has formed a new government, he will "call on the Israelis to agree to a mutual cease-fire" to clear the way for a reopening of negotiations and progress on the stalled "road map" peace plan.
Defense Minister Shaul Mofaz has said Israel will not agree to a cease-fire or let up in its fight against the militant groups if the Palestinians don't act against them, as is required by the U.S.-backed peace plan.
"Israel will not make any concessions before the Palestinian government proves with actions its intention to deal seriously and aggressively with the terrorist groups and to dismantle them," Mofaz said Wednesday in a speech to soldiers.
A U.S.-backed peace plan, the "road map" to Palestinian statehood by 2005, requires that Palestinian security forces disarm the militant groups.