By Adam Entous

JERUSALEM, Jan 10 (Reuters) - U.S. President George W. Bush set what may be an impossibly high bar for Israeli Prime Minister Ehud Olmert by saying on Thursday he believed Israel would sign a peace treaty with the Palestinians in a year.

Bush set the goal of a formal peace treaty at a news conference in the West Bank city of Ramallah with Palestinian President Mahmoud Abbas at this side.

Bush had earlier indicated he might settle for a less ambitious deal merely setting out a statehood "vision".

Though Olmert and Abbas this week told negotiators to open talks on core issues, Palestinian officials and many diplomats believe Olmert is seeking a vaguer "framework agreement", not a formal treaty that would define borders and, possibly, divide Jerusalem -- a deal that would enrage some coalition allies.

Bush faced a balancing act on his first visit as president to Israel and the occupied West Bank, which ends on Friday.

He needed to counter widespread scepticism in the region -- especially among the Arab allies he will visit next -- about the seriousness of the negotiations he helped launch in November at Annapolis. But he did not want to weaken Olmert with hardliners in his fractious government who oppose making concessions.

Bush's statement in Ramallah -- the strongest indication so far that he is personally pushing for a comprehensive rather than another interim agreement -- was unlikely to end the debate over what he is really after in his last 12 months in office.

Bush did not spell out what such a peace treaty would entail, though he did say a two-state solution would have little meaning until borders were defined and issues like the status of Palestinian refugees, Jerusalem and security were resolved.

He later used striking language to say Israel must end its 40-year "occupation" of the West Bank and ensure Palestinians had a viable state on contiguous territory -- though he accepted it was unclear what might happen in hostile, Hamas-run Gaza.

Israel has made clear a Palestinian state will not come into being until the Palestinians rein in militants in the West Bank and Gaza.

PESSIMISM

Even if Bush starts out with a genuine push for a full agreement on final-status issues, he could end up -- due to pressure from Israel or renewed violence -- in a negotiation over a far vaguer framework agreement or little more than a face-saving document of shared principles, officials said.

Palestinian officials say that could further weaken Abbas -- though he may in the end have little choice.

"The noble idea died on the drawing board long before Bush arrived," a senior Israeli official close to the current negotiations said of reaching a comprehensive agreement.

In 2000, Israel tried to reach a "Framework Agreement on Permanent Status", or FAPS, during Bill Clinton's final year as U.S. president. The idea was to follow up nine months later with a "Comprehensive Agreement on Permanent Status", or CAPS.

"None of the above happened for various reasons and some of those reasons are still valid today," said Oded Eran, who headed the Israeli negotiating team in 1999 and 2000.

"With all due respect to the U.S. president, there is a very long way to be covered if one wants to reach even an agreement of principles by the end of 2008," he added.

Gilead Sher, another lead Israeli negotiator from 1999-2001, said "nothing is easy" but the value of a framework agreement should not be underestimated. "The rest is mostly technical."

Olmert's office had no immediate comment on whether a signed peace accord was achievable or whether the prime minister shared that goal. With Olmert at his side in Jerusalem, Bush appeared on Wednesday to set a lower bar by calling for "a clear vision of what a state would look like".

By doing so, Bush added, "reasonable Palestinian leadership can say, here's your choice: 'You can have the vision of Hamas, which is dangerous and will lead to war and violence, or you can have the vision of a state, which should be hopeful'."

Though the United States has more influence on Israel than any other nation, Bush has made clear he cannot and will not force a comprehensive deal on Olmert.

Political reality is likely to intervene long before Bush's 12-month deadline for a deal runs out -- Olmert's fragile coalition could fall, violence could flare up or either leader could be forced to end talks to protect their positions at home.

A senior Israeli official said Bush's goal of a signed peace treaty could quickly "dwindle down to something inconclusive". (Additional reporting by Wafa Amr in Ramallah, editing by Alastair Macdonald and Giles Elgood)

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