By Philip Pullella

VATICAN CITY (Reuters) - The Vatican said Thursday peace between
Israelis and Palestinians would never be possible until the Jewish
state withdrew from the occupied territories and a Palestinian
state was born.

The Vatican made its position clear at the end of a day-long
meeting presided by Pope John Paul II and attended by Catholic
religious leaders from the Middle East.

In his address at the start of the meeting Thursday morning the
pope condemned violence by both Israelis and Palestinians, saying
people were being crushed by "two different extremisms" that were
disfiguring the face of the Holy Land.

A statement from the Vatican spokesman Thursday night said peace
between the two peoples "can be realized only if rights and
equality about fundamental questions are respected."

It listed these fundamental points as "security for Israel, the
birth of a state for the Palestinian people, the evacuation from
occupied territories, an internationally guaranteed special statute
for the most sacred parts of Jerusalem and a fair solution for
Palestinian refugees."

The future of Jerusalem, which Israel had declared its "united and
eternal" capital, is one of the most thorny topics in the Middle
East peace process.

Israel has thus far resisted calls by the Vatican for a special
statute to protect Jerusalem as the city sacred to Christians,
Muslims and Jews. Palestinians see East Jerusalem, which Israel
captured in 1967, as the capital of a future state.

PEACE HOPES DASHED

In his address Thursday morning, the pope expressed sadness that
the hopes for peace declared during the jubilee year 2000 did not
materialize.

"Unfortunately, we meet at a moment that I do not hesitate to
define as dramatic, both for the people who live in those dear
regions as well as for our brothers in the faith," he said.

"They, in fact, seem to be being crushed by two different
extremisms, which, independent of the reasons that fuel them, are
disfiguring the face of the Holy Land," he added.

The meeting, called by the pope last month, was held after Israel
severed ties with Palestinian President Yasser Arafat and struck
Palestinian targets in response to the killing by Palestinian
militants of 10 Israelis Wednesday.

"How we would have liked to see our Jewish and Muslim brothers walk
side by side with us in a united pact of love that would give back
to the Holy Land its true face of being a crossroads of peace and a
land of peace," he said.

The pope said people in the Holy Land "have for a long time been
sorely tried by acts of violence and by discrimination."

At least 765 Palestinians and 233 Israelis have been killed since a
Palestinian uprising against Israeli occupation erupted in
September 2000 after a deadlock in peace negotiations.

The pope called the meeting because he was worried that the life of
Christians in the Holy Land had become insufferable since the start
of the Palestinian uprising.

Christians, most of them Palestinians, make up only about three
percent of the population of Israel and the Palestinian territories
and the number is falling because of the hardships.

In an interview with a Catholic television station, the Vatican's
foreign minister, Archbishop Jean-Louis Tauran, said Christians in
the Holy Land were living in a "hell."

The concluding statement also repeated the Vatican's discontent
with Israel for authorizing the construction of a mosque very close
to the Basilica of the Annunciation in Nazareth, the boyhood home
of Jesus.

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