"We have much yet to achieve. There are tough moments -- moments that border on despair," Rabin told Prince Felipe of Spain, in whose name the award is made.
Earlier, in Madrid, Rabin said Israelis and Palestinians needed to reach "at least an outline of an interim agreement" on self-rule on the West Bank.
Arafat in his speech emphasized the importance of Palestinian elections in the Gaza Strip and the West Bank town of Jericho, postponed again this month.
Allowing Palestinians to choose their representatives and constituencies freely was an important step, he said.
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