George W Bush on Friday warmly greeted the newly elected Palestinian leader Mahmoud Abbas, who is in Washington to assess ways to speed up the rollout of the US-backed "road map" for peace in the Middle East.
Palestinian Prime Minister Abbas aims to convince Mr Bush to place pressure on Israel to release thousands more Palestinian prisoners.
To date, only several have been released.
Mr Abbas believes the release of more prisoners would clearly indicate that Israel is firmly committed to the establishment of a Palestinian state in 2005.
Mr Abbas alco demands that Israel curb its Jewish settlement outposts on the West Bank and end the construction of the security fence.
Mr Bush acknowledged it was an issue, saying: "The wall is a problem," he said at a joint press conference in the Rose Garden.
The "snaking" fence symbolised a lack of develop "confidence between the Palestinians and Israel," he added.
Mr Bush described Mr Abbas as a leader "of vision and courage."
The Bush administration pledged $20m (?12 million) of direct aid to boost jobs and investment in the Palestinian Authority.
Mr Abbas' presence in Washington is significant as Mr Bush is unwilling to work with the under-house arrest Yasser Arafat, whom he consider an accomplice to terrorism.
On Tuesday, Israeli Prime Minister Ariel Sharon meets Mr Bush.
He is likely to press for an end to Palestinian "terrorist organisations and their infrastructure" such as Hamas.
The world will scrutinise the outcome of this visit to determine how the US balances the political demands of the two leaders.
The meeting came after a four year-old Palestinian boy was killed and two other children were injured in the northern West Bank village of Barta when an Israeli soldier "accidentally" fired a machine gun from an armoured car.