A molecular-orbital derived polarization (MP) model is developed and shown to yield good thermodynamic and structural results for liquid water. In this method, each solvent molecule is treated quantum-mechanically by the semiempirical AM1 model, and the charge polarization of the molecule is determined by electronic structure calculations, making use of a hybrid quantum mechanical and molecular mechanical (QM/MM) technique. The MP model is shown to be as successful as the best polarizable and nonpolarizable three-site potentials for water. In particular, the computed heat of vaporization and density for liquid water at 25 degrees C and 100 degrees C are within 1% of experimental data. In addition, the MP model gives good estimates for the radial distribution functions in comparison with neutron scattering results.