Israel firm on refugees after Bush dismays Arabs

By Alastair Macdonald and Adam Entous

JERUSALEM (Reuters) - Israel ruled out all debate on letting Palestinian refugees return in any peace deal, as U.S. President George W. Bush ended a visit on Friday that left Arabs dismayed by his outspoken support for Israel's "chosen people".

As Bush flew out after three days of celebrations of Israel's 60th anniversary, an Israeli government spokesman said Palestinian insistence on the right of return for 4.5 million refugees and their descendants was "the ultimate deal breaker".

Six months into negotiations sponsored by Bush in the hope of a deal before he leaves the White House, Prime Minister Ehud Olmert's spokesman used some of the toughest Israeli language yet to insist that President Mahmoud Abbas abandon 60-year-old refugee claims if he wants to establish a Palestinian state.

"This demand, which does not exist under international law, for right of return, is the ultimate deal breaker. You cannot have peace and this demand at the same time," Mark Regev said.

Some 700,000 people, half the Arab population of Palestine in May 1948, fled or were driven from their homes when Israel was created. Letting them and their families live in Israel now would undermine its nature as a Jewish state, Israel argues.

It also disputes the legal basis of the right of the return first set out in a United Nations resolution of December 1948.

PALESTINIAN DISMAY

Bush, who steps down in January, made little reference to the peace negotiations or to the Palestinians at all while in Israel. Many Palestinians were dismayed by a speech to Israel's parliament in which he spoke of a shared divine providence uniting American Christians like himself with Israel's Jews.