Interestingly enough the story first came out of the BBC, who have made a 3 part documentary on the Israel-Palestine peace process. It is during this documentary that the allegation is made. The BBC now seem to be backing away from the story.
The Guardian have picked up on this sudden reluctance on the part of the BBC and the fact that the BBC just covered the story by reporting the White House denial and not the original "Bush is Nuts" slant taken by most other media outlets. In fact a quick look on the BBC site shows that even that denial story has disappeared while older stories remain, though you can still find it through a search for the words White House.
Its interesting that the BBC have backed down so quickly on this, especially after earlier (untrue) allegations that they tried to fire John Humphrys for giving an after dinner speech criticising the Labour government. Though the BBC did admit that they "censured" him. Is the BBC running scared?
Update: The BBC now has a story saying
A Palestinian official who said the US president had claimed God told him to invade Iraq and Afghanistan says he did not take George Bush's words literally.So I guess everyone is stepping back from this story.