JERUSALEM, May 14 (Reuters) - Israeli Prime Minister Ehud Olmert said on Wednesday that progress was being made in U.S.-backed peace talks with Palestinian President Mahmoud Abbas and that "hopefully" a deal would be reached this year.

"Israel continues to actively seek peace with its neighbours, especially with the Palestinians," Olmert told an audience in Jerusalem that included visiting U.S. President George W. Bush.

"We are making great efforts and seeing progress on this front, which we believe, with continued dedication and labour, will come to fruition, hopefully, ... within this year, the year 2008," Olmert said.

The peace talks were launched at a peace conference in Annapolis, Maryland in November with the goal of reaching a statehood deal before Bush leaves office next January.

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