LONDON, Jan 11 (Reuters) - Middle East peace envoy Tony Blair said on Friday he believed a peace deal could be clinched between the Israelis and the Palestinians before U.S. President George W. Bush leaves office in January 2009.

His comments came after Bush, in his first visit to Israel and the West Bank in seven years as president, on Thursday pushed the two sides for a treaty to be signed within a year to create a Palestinian state.

"Sure, it is absolutely possible to have a peace deal by the end of the year if people want to make it happen," the former British prime minister told British reporters after meeting Bush on the American leader's visit to Jerusalem.

But, injecting a note of caution, he said to achieve peace, those involved had to be prepared "to have the courage to take the difficult decisions to make the difficult compromises."

Blair, peace envoy to the Middle East quartet, said: "Given the determination there is to succeed and given the desire on the part of the American leadership, the Israeli leadership, the Palestinian leadership to see it happen, I think people could be surprised this year."

"People in Israel - they don't want to pay the price of the world's desire to have a peace deal, and I totally understand that and I am a strong supporter of the state of Israel, and this should only happen under terms which guarantee Israel's security.

"But if we can achieve those terms and give the Palestinian people a state, then I think there is nothing more important in the battle against... extremism and terrorism that is fairly deep-rooted in many parts of the world today."

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