* Bush calls Israelis a "chosen people"
* Bush says U.S. will always stand with Israel
* Scattered Palestinian protests on anniversary of Israel
(Adds Bush remarks at museum, paragraphs 9-10)
By Matt Spetalnick and Tabassum Zakaria
JERUSALEM, May 15 (Reuters) - President George W. Bush told Israelis on Thursday they were a "chosen people" who can forever count on American support against enemies like Hamas and Iran.
On a day when Palestinians remembered homes and land lost as Israel was created in 1948, Bush made only fleeting reference to their aspirations for a state of their own in a speech marking Israel’s 60th anniversary that was laced with references to God.
Basking in ovations on the second day of a farewell visit to a country where his presidency is hailed as a golden age, Bush again said little of the talks he has sponsored in recent months between Israel and the Palestinians, which he hopes can bring a deal on a Palestinian state before he leaves office in January.
Speaking of the "promise of God" for a "homeland for the chosen people" in Israel, Bush told the Israeli parliament after a visit to the Roman-era Jewish fortress at Masada: "Masada shall never fall again, and America will always stand with you."
He predicted the defeat of Islamist enemies Hamas, Hezbollah and al Qaeda in a "battle of good and evil".
Letting Iran have nuclear weapons would be an "unforgivable betrayal of future generations", he said. By comparing talking with such foes to appeasement of Hitler, he sparked a debate at home among those campaigning to succeed him as president.
Bush described the "bonds of the Book" — faith in the Bible shared by Christians like himself and Jews — as bolstering an "unbreakable" alliance between Israel and the United States.
Of the Palestinians, half of whom were pushed into exile to make way for the Jewish state, Bush said that, looking ahead another 60 years in the future, "the Palestinian people will have the homeland they have long dreamed of and deserved".
During a later visit to the Israel Museum, Bush, referring to the old biblical texts housed at the building, said "these documents tell the story of a righteous God and his relationship with an ancient people."
"There is no doubt in my mind that the patriarchs of ancient Israel and the pioneers of modern Israel would marvel at the achievements of this nation," he said.
"SLAP IN THE FACE"
The president’s language in Israel has dismayed Palestinians looking for the U.S. superpower to mediate in their negotiations with Israel. Islamist Hamas, which spurns such talks, said Bush sounded "like a priest or a rabbi" and had delivered a "slap in the face" to those Palestinians who placed their hopes in him.
Bush said: "Some people suggest that if the United States would just break ties with Israel, all our problems in the Middle East would go away ... America utterly rejects it."
In scattered protests marking the anniversary of Israel’s first day of statehood on May 15, 1948, Palestinians in the occupied West Bank and Gaza Strip threw rocks towards Israeli police and troops, who fired tear gas and bullets in the air.
In a speech marking what Palestinians call the "Nakba", or catastrophe, when some 700,000 Arabs fled or were forced from their homes during Israel’s foundation, President Mahmoud Abbas said: "Isn’t it time for Israel to respond to the call of a just and comprehensive peace and achieve historic reconciliation between the two peoples on this sacred and tortured land?"
But Palestinian political analyst Ali Jarbawi said Bush’s rhetoric showed Washington was not being an honest broker: "He is not talking about a two-state solution. He is talking about a state of leftovers for the Palestinians," Jarbawi said.
Arabs are especially sensitive to what they see as amnesia, or worse, among Israelis and foreigners about how many of them were forced into exile in 1948. By saying Jewish "refugees arrived here in the desert", Bush may have done little to persuade many Palestinians their own refugees are not forgotten.
Amid the standing ovations that have followed him since he arrived in Israel on Wednesday, there was some discord.
Three Arab members of Israel’s parliament held up a sign reading "We shall overcome" and were escorted out of the Knesset chamber as Bush began to speak.
"HOPEFUL" ON DEAL
Asked about Bush’s speech, White House spokeswoman Dana Perino said the president was "hopeful" a deal could be struck by the time he leaves office.
In Ramallah in the West Bank, pedestrians stood at attention as sirens wailed for two minutes to remember the Nakba.
Calling Bush "the leader of evil in the world", Hamas official Sami Abu Zuhri said the group would never grow weak.
At Masada, a cable car carried Bush high above the Dead Sea to the plateau where, according to a Roman-era historian, 960 Jewish men, women and children committed suicide rather than surrender to Roman legions crushing a rebellion.
There have been few signs of progress in U.S.-brokered negotiations since promises were made at a peace conference in Annapolis, Maryland, in November.
In the latest setback to a deal, Israeli Prime Minister Ehud Olmert has said he will quit if indicted in a police corruption probe. The split between Abbas and Hamas and fighting between Israel and Hamas in Gaza have also hampered peace efforts.
On Friday, Bush and his wife Laura will wind up their visit to Jerusalem and fly on to Saudi Arabia before weekend talks in Egypt with Abbas and other Arab leaders. (Additional reporting by Jeffrey Heller and Brenda Gazzar in Jerusalem, Mohammed Assadi and Ali Sawafta in Ramallah, Haitham Tamimi in Hebron and Nidal al-Mughrabi in Gaza, writing by Alastair Macdonald; Editing by Richard Williams)