"With the end of the war in Iraq and the removal of the Saddam Hussein (news - web sites) regime one of the threats to Israel was eliminated and frankly the power equation of the Middle East and Gulf region changed," Powell told Fox News.
"That gave (Israeli Prime Minister Ariel) Sharon more flexibility in the decisions that he might make," Powell said.
Discussions between Sharon and Palestinian prime minister Mahmud Abbas Tuesday, "talking about peace, talking about reconciliation and promising to live with each other and cooperate with each other, were very "hopeful," he said.
But he warned that while anti-Israel terrorist groups had agreed to a ceasefire, a more permanent effort to end the bloody jihad was necessary to form any permanent solutions.
Powell expressed concerns that no permanent solutions had been found to terrorist networks operating against Israel.
"I'm concerned about remaining terrorist organizations that have not given up the quest to destroy the state of Israel," Powell said, naming Hamas, Palestinian Islamic Jihad, and the Al-Aqsa Martyrs Brigades which, while having announced a ceasefire, still had to agree to a permanent end to violence.
"As he (Abbas) has said, the armed intifada must end and he has also said those who have guns within any state must be under the control of the government."
Whether Hamas will be dismantled, as Abbas has vowed, "remains to be seen." The group's social wing and its armed wing "cannot live separate lives. They are one organization," Powell said.
"And until Hamas abandons all effort to conduct terrorist activity and all intend to conduct terrorist activity, then we have to be hard on all of Hamas."