"Today there is more interest in the solution than the conflict... the majority are sincerely in favour of peace," Peres said. Without giving a specific timeline, Peres said the next 10 months leading up to the US presidential elections will be crucial.

Noting the current situation in Gaza, former UK Prime Minister Tony Blair, who chaired this session on the Middle East, asked if events on the ground are linked with ongoing negotiations and if a deal could be reached.

Salam Fayyad, Prime Minister of the Palestinian National Authority, said it is important to focus on the "here and now", while continuing on the political track and dealing with the longer-term issues.

"Security is as much a Palestinian need as an Israeli need," Fayyad said. "We understand better than anyone else what lack of security can do to us. We are trying to do the best we can under extremely difficult conditions."

Israeli Foreign Minister Tzipi Livni told participants that since the Annapolis Conference in the US, Israelis and Palestinians have started bilateral negotiations. "Success depends on the capability of each party to make compromises," she said. "We cannot afford a failure, we need a success... [we need to] end the conflict by creating a Palestinian state as the answer for the national aspiration of the Palestinian people."

Iran, however, is undermining efforts to solve the conflict and efforts for peace, she said. Nevertheless, many of the challenges can be solved by working together with moderates. "Our strategy is a dual track," Livni explained, "to work with pragmatic leadership, while delegitimizing extremists."

Despite the perceived gloom, Prime Minister Fayyad noted that the Palestinian economy is growing, thanks to small community development projects. He indicated that there will be higher growth if restrictions on mobility [in the Palestinian Territories] are eased.