By Jeremy Cooke BBC Middle East correspondent

Both sides in this conflict regard Colin Powell's speech as the United States administration's key policy statement on the Middle East.

For the first time the United States is speaking about ending Israeli occupation. For the first time they are speaking about a viable Palestinian state

Nabil Shaath Palestinian official

As such, both its content and tone are being analysed in minute detail.

There may have been very little new in what Mr Powell had to say.

But for the Palestinians, the fact that a US Secretary of State directly addressed the issues of refugees, occupation and economic closure is encouraging.

There is also an enthusiastic welcome for Mr Powell's comments on the need for a viable Palestinian state and his call for a total freeze in the building of Jewish homes - or settlements - on Israeli-occupied land.

No time-table

Nabil Shaath, a leading Palestinian official, welcomed the speech.

"For the first time the United States is speaking about ending Israeli occupation. For the first time they are speaking about a viable Palestinian state," he said.

But US engagement may not be enough

What the Palestinians did not hear however, was any reference to a schedule in which this vision might be achieved.

And, at least on the street, that threatens to leave many Palestinians deeply cynical about how much pressure the Americans are willing to apply to the Israeli Government.

Fighting continues

For the Israelis, there were no unpleasant surprises in this speech.

Mr Powell spoke of the need for a "realistic" solution to the Palestinian refugee issue.

He also referred to the Israel's future as a "Jewish" state.

These comments have encouraged the Israelis to believe that the Americans would resist any mass return of Palestinian refugees to territory within Israel's 1948 borders.

"Secretary Powell's speech was positive and full of goodwill but most of the work is still before us," Israeli Foreign Minister Shimon Peres said in a statement.

The Israelis welcome Colin Powell's insistence that Yasser Arafat must make a 100% commitment to stopping Palestinian violence.

Prime Minister Ariel Sharon will continue to insist that there must be a complete ceasefire before any return to negotiations.

And as the fighting continues on the ground, it is hard to see how there can be any real progress, despite America's re-engagement in the Middle East.