"We believe that religious liberty is fundamental to civilized society, so we condemn anti-Semitism in all forms whether by those who openly question Israel's right to exist, or by others who quietly excuse them," Mr. Bush said.
Meanwhile, Palestinians marked the 60th anniversary of their uprooting with rallies, sirens and black balloons- an annual ritual that turned even darker this year because of crippling internal divisions, diminishing independence hopes and the stark contrast to Israel's all-out birthday bash. Palestinians call it their "nakba," Arabic for catastrophe.
Mr. Bush's embrace of Israel at a time when the Palestinians were mourning was bound to further harm the tainted U.S. image in the Palestinian areas and across the Arab world.
Palestinian analyst Hani al-Masri said Mr. Bush cannot be a peacemaker if he sides with Israel. "It is not a peace process. It is a process without peace," he told CBS News correspondent Robert Berger.
In a speech to the Knesset, or parliament, Mr. Bush asserted that the United States has an unbreakable bond with Israel. He said Americans believe that Israel has a right to defend itself from extremists and "killers pledged to its destruction."
"Some people suggest that if the United States would just break ties with Israel, all our problems in the Middle East would go away," Mr. Bush said. "This is a tired argument that buys into the propaganda of the enemies of peace and America utterly rejects it. Israel's population may be just over 7 million. But when you confront terror and evil, you are 307 million strong, because the United States of America stands with you."
Mr. Bush's five-day Mideast journey, which was to take him to Saudi Arabia and Egypt, represents another effort to push Mideast peace talks forward as his time in office winds down. Israel and the Palestinians hope to reach an agreement before Mr. Bush leaves office next January.
Israeli Prime Minister Ehud Olmert, who spoke before Mr. Bush, said his nation is ready for peace and that he is working on the U.S. vision of an Israeli-Palestinian peace agreement.
Olmert said he is committed to carrying out Mr. Bush's vision of forming an independent Palestinian state next to Israel. And when a deal is reached, Olmert says the divided parliament and Israeli public will rally behind it.
"When the day comes for a historic peace agreement between us and our Palestinian neighbors. It will be brought to the approval of this house," Olmert said. "I am convinced: a peace agreement that will reflect the vision you presented to the world in June 2002, and that will be based on two states for two people, a Jewish state and a Palestinian state, living side by side in peace. This agreement will be approved in the Knesset by a large majority and will be supported by the vast majority of the Israeli public."
The chamber reacted with silence and nervous laughter, then Mr. Bush began to laugh. Two hardline lawmakers walked out of the chamber in protest. As Mr. Bush began speaking, three lawmakers held up pieces of papers with the message, "We shall overcome." Security guards approached them and led them from the chamber.
Mr. Bush began his address by exclaiming in Hebrew, "Yom Atzmaut Sameach," or "Happy Independence Day." He spoke of Israeli history and said that the United States will stand with the Israelis against terrorism and extremism. "We will never let down our guard or lose our resolve," he said.
Mr. Bush took special aim at Iran, saying the United States stands with Israel in opposing moves by Tehran to obtain nuclear weapons.
"Permitting the world's leading sponsor of terror to possess the world's deadliest weapons would be an unforgivable betrayal for future generations," the president said. "For the sake of peace, the world must not allow Iran to have a nuclear weapon."
Several months of negotiations have produced no tangible results, compounded by Olmert's growing weakness caused by a widening corruption probe. And opinion polls show support for U.S.-backed Palestinian leaders seeking a peace deal is plummeting.
The Palestinian economy remains stagnant, despite a massive injection of foreign aid, in part because of Israel's reluctance to ease its restrictions on movement and trade.
Meanwhile, the separation of Hamas-run Gaza and the Abbas-ruled West Bank is deepening. The rivals are not on speaking terms, and the two territories that were to make up the future state are cut off from one another by Israeli travel bans.
"The level of hopelessness is very strong," said Palestinian pollster Jamil Rabih, adding that a recent survey indicates that half the Palestinians don't expect to see a state established within the next 25 years.
"There is nothing on the horizon for us," he added.