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President Bush, meeting with British Prime Minister Tony Blair after Yasser Arafat's burial, declared today, "We have a great chance to establish a Palestinian state."

"I intend to use the next four years to spend the capital of the United States on such a state," Bush said at a news conference with Blair after their meeting.

"I believe it is in the interests of the world that such a truly free state develop. I know it is in the interest of the Palestinian people."

The president said it was up to Palestinians to elect a democratic government and Arafat's successors to allow freedoms to take root. "We'll hold their feet to the fire to make sure that democracy prevails," he said.

Bush, whose policy in Iraq frayed relations with France, Germany and other traditional allies, also said he intends to travel to Europe as soon as possible after his second inaugural on Jan. 20.

He said he looked forward to using the "combined strength of Europe and America" to advance freedom.

Bush and Blair met shortly after the Palestinian leader was buried at his West Bank headquarters. The Bush and Blair governments hope that a change in Palestinian leadership might open new avenues toward peace.

Standing in front of U.S. and British flags, Blair called for supporting the Palestinians as they choose a successor to Arafat and urged taking that support beyond the elections as Palestinians work to make their society more functional.

"If we want a viable Palestinian state, we want to make sure the political, the economic and the security infrastructure of that state is shaped and comes into being," Blair said.

White House officials on Thursday indicated that the administration, seeking to take advantage of the diplomatic opening created by Arafat's death, was prepared to consider a British proposal that the president appoint a special Middle East envoy to shepherd the peace process.

Blair, who arrived Thursday and dined privately with Bush, has said he hopes to prod the White House into becoming more engaged in resolving the Arab-Israeli conflict.

U.S. officials said they have "an open mind" about the idea of a special envoy, which would be a departure for an administration that has generally shunned such special diplomatic assignments.

"We will certainly listen very carefully to what they have to say," said a White House official.

Another official said the approach would work only if the administration gives the envoy real authority. He said the administration could opt for what he called the "James Baker" model, a hard-nosed negotiator like the former secretary of state who forces both sides to confront the truth. If the administration were less ambitious, he said, it might accept a "George Mitchell" model, referring to the former Senate majority leader whose report on cooling the conflict had little traction.

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