More than 200 Palestinians have been killed since the end of June and this must stop immediately, he said.
Annan called for the establishment of a Palestinian state, saying that was the solution for the problems in the region.
Annan noted in a press conference in Ramallah that he made his opinion clear during his meetings in Israel.
Beyond maintaining life a way of life must also be maintained, he said, adding that the blockade on Gaza must be lifted and the crossings must be opened. Israel must not only allow goods in, but also allow Palestinians to export, he said.
Warm meeting in Ramallah (Photo: AFP)
The UN secretary-general expressed his hope that Olmert and Abbas will meet soon to discuss the issues standing between Israel and the Palestinian Authority.
Before the press conference began, dozens of family members of Palestinian prisoners jailed in Israel waited for Annan at the Muqataa
Annan is aware of the fact that in the past few days, during his visits to Lebanon and Israel, he was mainly asked to refer to the issue of the war in Lebanon, but stressed that in light of this situation "we must not forget the suffering of the Palestinian people."
He made it clear that he has been exerting many efforts in a bid to halt the Israeli blockade on the PA, open the crossings and suspend the military operation in the Strip, but he also called on Palestinians to halt the firing of Qassam rockets and release kidnapped soldier Gilad Shalit.
If there are good intentions, a way to solve the solution can be found, Annan said. He added that in addition to Shalit, the senior Palestinian officials and ministers who have been arrested by Israel in recent weeks must also be released.
Addressing the intra-Palestinian struggles between Fatah and Hamas, Annan voiced his support for the efforts to reach a unity government and said that "this is a very important process."
"If the Palestinians can unite around a common, realistic program and if it can help bring the security situation under control, it would be a very positive development indeed and the United Nations will do whatever it can to support you," he added.
Abbas: Our prisoners are as important as Shalit
President Abbas said that he and Annan had discussed the situation in the territories, and thanked the UN chief for finding the time to visit the PA at such a difficulty period "in light of Israel's policy of destruction, killing and collective punishment."
He demanded that efforts be exerted for the release of the senior Palestinian officials jailed in Israel and in order to solve the problem of tens of thousands of Palestinians jailed in Israel.
"Just like Gilad Shalit is important for the people in Israel, our prisoners are very important to the Palestinian people," he said. "This is a very painful political and humane issue and we must work to solve it."
"We presented Annan with the efforts we are putting into the establishment of a Palestinian unity government which will be able to put an end to the siege imposed on us, work for a truce and bring the Gilad Shalit affair to an end," Abbas added.
He expressed his hope that the efforts to establish a unity government will bear fruit as soon as possible.
Before his meeting with Annan, Abbas appeared before hundreds of Palestinian government workers and stressed that their livelihood came before democracy, hinting to the people's situation during the era of Hamas (which was elected in democratic elections.)
Hamas officials said that the struggles and strikes carried out by the workers were part of the political game aimed at undermining the recent election results.
Reuters contributed to the report