US Secretary of State Condoleezza Rice has signed an agreement giving the Palestinian Authority $80m (Â£39m) to reform their security services. Ms Rice was in the West Bank, where she attended a meeting of the Fatah-led cabinet which was installed after the Hamas faction took over Gaza in June.
She said Israel was ready to discuss “fundamental issues” leading to the creation of a Palestinian state.
The US is seeking to bolster the Fatah leadership, headed by Mahmoud Abbas.
At a news conference in Ramallah with Mr Abbas, the Palestinian Authority president, Ms Rice said Israeli Prime Minister Ehud Olmert was ready to meet to talk about key points leading to the establishment of a Palestinian state.
“He looks forward to continued discussions with you and he is ready to discuss the fundamental issues that will lead to negotiations soon for the creation of a Palestinian state… and the United States wants to support that bilateral track,” she said.
Mr Abbas said he was ready to work with Israel on a “declaration of principles” as a step toward a full peace agreement.
Israeli-Palestinian talks would “focus on implementing what was mentioned in the road map,” he said, referring to the stalled international peace plan.
Ms Rice will not be meeting any leaders from the Hamas Islamist movement during her trip.
On Wednesday, Israeli Foreign Minister Tzipi Livni said Israel would not miss the chance to “promote a dialogue” with Mr Abbas.
But Ms Livni suggested Israel was not yet ready to negotiate on issues such as the status of Jerusalem, the right of return for Palestinian refugees and future borders with any Palestinian state.
“Sometimes it is not wise to put the most sensitive issues first,” she said.
Since Hamas took control of Gaza, the US and Arab League have sought to isolate the Islamist militant group by offering strong support for Mr Abbas’s emergency cabinet.
Israel has released Palestinian prisoners and transferred millions of dollars in frozen tax receipts to the Palestinian Authority as goodwill gestures to bolster Mr Abbas.