The US government is promising to support Palestine if Yasser Arafat ends all terrorist activity in the region.
Secretary of State Colin Powell said Arafat could expect support for Palestinian statehood and a positive response from Israel.
He also said the US government had not changed its view that Israel must give up land on the West Bank and in Gaza.
Powell also called Israel an occupier of Arab land and demanded it stop Jewish housing construction, in order to achieve peace with the Palestinians.
But he said for the peace process to begin, "we have to see action." He made it clear that Arafat's TV appeal for Palestinian militants to halt suicide bombings was not enough.
The State Department says Arafat must also close Hamas, the Islamic Jihad and other groups that have taken responsibility for fatal attacks on Israeli civilians.