Israel has begun to enforce a 10-month freeze on Israeli settlements in the West Bank, sending officials out to construction sites to issue stop-work orders.
But a future Palestine must be 'demilitarized,' and the Jewish settlements won't be halted, Israel's leader says.
Many Israelis see the president's decision to bypass Jerusalem as part of a broader shift in US priorities in the region.
Both sides are maneuvering for another ceasefire, and Israeli troops are not likely to invade the Gaza strip, say analysts.
Israeli President Shimon Peres led a reconciliation effort Monday after four days of ethnic violence.
The latest stops in his Mideast tour included the rocket-besieged Israeli town of Sderot and the West Bank town of Ramallah.
For Palestinians in areas of Jerusalem seized in the 1967 Arab-Israeli war, the attack reinforces their precarious status in-between their countrymen in the West Bank and Israel.
In Jerusalem Wednesday, the president called for two democracies, Israel and Palestine, to live side by side.