WASHINGTON (AFP) - US President George W. Bush says the goal of a Palestinian state living at peace with Israel is "within reach" and proposed a new 350 million dollar aid package to promote Palestinian reforms.

In his State of the Union address, Bush singled out Syria and Iran as threats to Middle East stability and vowed to "confront regimes that continue to harbor terrorists and pursue weapons of mass murder."

He also issued a rare rebuke to two of the United States´ main allies in the region, Saudi Arabia and Egypt, challenging them to accelerate their democratic reforms.

Bush delivered his annual speech to Congress at a time when hopes were rising for a revival of the US-backed "road map" for ending the Israeli-Palestinian conflict that has claimed more than 4,700 lives since September 2000.

"The goal of two democratic states, Israel and Palestine, living side by side in peace is within reach, and America will help them achieve that goal," the president said.

Bush said his new secretary of state, Condoleezza Rice, would discuss prospects for furthering the peace process and developing a Palestinian state when she visits the region early next week in the middle of a European tour.

"To promote this democracy, I will ask Congress for 350 million dollars to support Palestinian political, economic, and security reforms," Bush said. The administration late last year had already promised some 60 million dollars.

The White House, which had pulled back from the peace process as efforts to implement the road map faltered last year, has raised its profile since Mahmud Abbas was elected Palestinian president to replace the late Yasser Arafat.

"The beginnings of reform and democracy in the Palestinian territories are showing the power of freedom to break old patterns of violence and failure," Bush said Wednesday.

He also said the United States was committed to spreading democracy throughout the rest of the Middle East and issued new warnings to Syria and Iran.

"Syria still allows its territory, and parts of Lebanon, to be used by terrorists who seek to destroy every chance of peace in the region," he said. "We expect the Syrian government to end all support for terror and open the door to freedom."

He said Washington was applying sanctions under the Syrian Accountability Act although US officials have said nothing new was immediately in the pipeline beyond a near-blanket ban on US exports to Syria imposed last May.

The president, who included Iran in his famous "axis of evil" in his State of the Union speech three years ago, said Wednesday the threat from Terhan had not diminished.

"Today, Iran remains the worlds primary state sponsor of terror, pursuing nuclear weapons while depriving its people of the freedom they seek and deserve," he said.

Bush said the United States was working with Britain, France and Germany to persuade the Islamic Republic to renounce its nuclear ambitions and end its support for terror.

"And to the Iranian people, I say tonight: As you stand for your own liberty, America stands with you."

Bush also preached democracy to Saudi Arabia and Egypt, two of Washington´s strongest allies in the region, urging them to lead the way in spreading freedom throughout the region.

"The government of Saudi Arabia can demonstrate its leadership in the region by expanding the role of its people in determining their future," he said.

"And the great and proud nation of Egypt, which showed the way toward peace in the Middle East, can now show the way toward democracy in the Middle East."

His remarks came two weeks after his inaugural address vowing to take on undemocratic governments around the world. They appeared to be a response to sceptics who wondered whether he meant friendly as well as hostile regimes. (Copyright © 2005 Agence France Presse. 02/02/05)