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Gov. Arnold Schwarzenegger said Thursday he will veto hundreds of bills unless lawmakers agree on a comprehensive fix for the state's aging water system.

Overhauling California's decades-old water system is a priority for Schwarzenegger, but Democrats and Republicans have not been able to find enough common ground to forge a long-term solution.

"I made it very clear to the legislators and to the leaders that if this does not get done, then I will veto a lot of their legislation, a lot of their bills, so that should inspire them to go and get the job done," Schwarzenegger said in a speech to community college officials in San Francisco.

Legislative leaders have been meeting with Schwarzenegger this week to try to reconcile their differences by Friday. By statute, Schwarzenegger has until midnight Sunday to sign or veto bills.

Democrats, who make up a majority in the Assembly and Senate and have sponsored almost all the bills sent to the governor, have characterized the veto threat as silly. They said they expect the governor to consider each bill on its merits.

About 700 bills are awaiting action.

Leaders of both parties were cautiously hopeful a deal would be struck Friday.

Senate President Pro Tem Darrell Steinberg, a Sacramento Democrat, said lawmakers were having constructive, productive meetings and he hoped to bring a water deal to a vote next week.

"We are working through all of the outstanding issues," Steinberg said after an afternoon break. "We're optimistic one minute and then less so the next, but everyone is motivated to try to get this done."

His counterpart, Senate Minority Leader Dennis Hollingsworth, R-Murrieta, added: "Like most talks, two steps forward, one step back."

If the leaders do succeed in reaching a compromise, any upgrade to the state's water system must then win approval in the Legislature. That will get complicated because individual lawmakers will be pressured by water districts, environmentalists, farmers and others to protect the interests of the regions they represent.

Last month, Democrats presented a legislative water package that was supported by some water agencies, farmers and environmentalists.

The legislation sought to strengthen oversight of how water in the Sacramento-San Joaquin Delta is used, restore the delta's ailing ecosystem and set aside money for dams, something Republicans and Schwarzenegger have insisted upon. It proposed $12 billion in bonds.

The Democratic plan failed to generate support from Republicans, who complained it did not guarantee money to build new dams. Other lawmakers question whether the state can afford to issue billions of dollars in bonds after the Legislature spent the year cutting tens of billions of dollars from education, social services, health programs and other core state services.

California already has $67 billion in outstanding bond debt, a number that's expected to grow by $44 billion over the next four years, according to an Oct. 1 report released by the state treasurer's office. The amount needed each year from the state's already strapped general fund to pay those bonds will rise to $8.4 billion by the 2012-13 fiscal year.

A water deal requires a two-thirds vote in the Legislature, and thus needs at least some Republican support, because it would include spending money.

Hollingsworth said lawmakers are discussing a smaller general obligation bond between $8 billion and $10 billion, but many of the details of the financing remain to be worked out.

Another unresolved matter is a push by Democrats to set up the state's first groundwater monitoring program, which Republicans describe as an intrusion of private property rights.

One aspect of the Democratic package that remains part of this week's discussion is creating a seven-member council that would issue decisions regarding the use of delta water. The makeup of the council and the scope of its authority have yet to be finalized.

Some lawmakers who represent the delta region said they are concerned that such a commission would favor farming interests in the San Joaquin Valley and metropolitan water districts in Southern California.

Meanwhile, water agencies in the San Francisco Bay area and Northern California want to maintain their existing water rights. They are concerned that their allocations could be reduced to improve fish habitat in the delta.

While the council's authority has yet to be worked out, it would have little if any say over a process currently under way to route some fresh water from the Sacramento River around the delta so it could be pumped directly to Central Valley farmers and Southern California cities.

Much of California's network of reservoirs and canals dates to the term of Gov. Pat Brown in the 1960s, leading Schwarzenegger and many others to say the system is inadequate for today's population and the millions of people to be added in the years ahead.

Three years of below-average rainfall and lighter-than-average snowfall in the Sierra Nevada, combined with federal pumping restrictions intended to protect delta fish, have created a severe water shortage for much of the state.

Farmers have fallowed thousands of acres, while cities have imposed mandatory water rationing, raised rates or imposed surcharges on their customers.

U.S. Interior Secretary Ken Salazar last week urged Schwarzenegger to call a special session to deal with the crisis, but the governor has been unwilling to do so until the legislative leaders can reach a deal.