Speaking to a packed session of the legislature, with the spectator galleries filled to capacity, Sarkozy called on Israel to stop settlement in the West Bank. But he tempered his address by assuring Israel that it could count on France's support in halting Iran's nuclear program.

Sarkozy, whose maternal grandfather was a Greek Jew, praised Israel's democracy and quoted the biblical passage in which God promises the Holy Land to the children of Israel. The comments drew applause and broad smiles from most lawmakers but got scowls from the handful of Arab members.

But as he turned his attention to the struggling peace process, reactions by Israelis were less enthusiastic.

"There cannot be peace without an immediate and complete halt to settlement," he said. "There cannot be peace without recognition of Jerusalem as the capital of two states and the guarantee of free access to the holy places for all religions."

Israel and the Palestinians have set a target of the end of this year to reach a final peace deal. But both sides have said that goal is increasingly unlikely. The Palestinians are upset about continuing Israeli construction in the West Bank and east Jerusalem - areas they claim for a future state. Israel says the Palestinians must do more to rein in militants.

Prime Minister Ehud Olmert of Israel has declared a partial settlement freeze but said construction will continue in areas Israel intends on retaining - including major settlement blocs and Jewish neighborhoods in east Jerusalem.

Olmert also opposes giving up control of Jerusalem's Old City, which contains key Jewish, Christian and Muslim holy sites. Israel captured east Jerusalem, including the Old City, in the 1967 Middle East war.

In his speech, Sarkozy assured Israel it was not alone in its concerns about Iran's "nuclear military program" and said confronting Tehran requires a united international front. France takes on the presidency of the European Union on July 1.

"France is determined to pursue, with its partners, a policy of progressively tougher sanctions," he said in French. "An Iran equipped with nuclear weapons is unacceptable for my country."

At a meeting Monday in Luxembourg, EU nations approved new sanctions against Iran, including a freeze on assets of the country's biggest bank and a travel ban on high-level experts dealing with Iran's nuclear program.

Israel, which believes Iran is developing nuclear weapons, has welcomed the international sanctions, but warned that "all options are on the table" if diplomacy fails.

Iran has denied pursuing nuclear weapons, saying its program is geared toward generating electricity.

While Sarkozy's speech was well-received, Olmert acknowledged some differences between the nations in an address to the same parliamentary session.

"I do not intend to brush over the differences of opinion between us on several issues," Olmert said, as Sarkozy listened intently. "We don't always agree on every issue, on every detail, see things exactly the same way."

Olmert was upbeat about Israel's prospects for closer ties with the EU as a consequence of the six-month French presidency.

"I am sure that this will be a wonderful opportunity to upgrade relations between Israel and the European Union," he said.

Israeli and EU officials agreed last week to begin talks to strengthen political and economic ties and give Europe more of a voice in Middle East peace efforts. The agreement came at a time when the U.S. presidential campaign and leadership change are expected to diminish Washington's appetite for peacemaking.

On July 13, Sarkozy will be host to a conference in Paris where he hopes to bring together Olmert and President Bashar Assad of Syria. Although both men are expected to attend it is not known if they will meet.

Israel and Syria recently announced that they had reopened indirect peace talks through Turkish mediators.

Sarkozy said that his country, a major contributor to the 13,600-strong United Nations peacekeeping force in southern Lebanon, was ready to use all means at its disposal to help Israel reach and maintain peace accords with all its neighbors; the Palestinians, Syria and Lebanon.

Sarkozy arrived in Jerusalem on Sunday for a three-day visit, accompanied by his wife, the model-turned-singer Carla Bruni-Sarkozy.

His schedule includes talks with Israeli and Palestinian leaders, a visit to the biblical West bank town of Bethlehem and a meeting with the parents of an Israeli soldier held by Palestinian militants in Gaza. The young man, Gilad Schalit, holds French citizenship.

France was a strong ally in Israel's early years of independence. But relations soured, particularly after the 1967 war, when France imposed an arms embargo and began adopting more policies critical of Israel.

Many Israelis have long viewed France as biased in favor of the Palestinians, and reports of rising anti-Semitism toward the French Jewish community - at 600,000, the third-largest in the world - have only fanned the flames.

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