A novel nonlinear teleoperation algorithm for simultaneous inertial parameters and force estimation at the master and slave sides of the teleoperation system is proposed. The scheme, called Extended Active Observer (EAOB), is an extension of the existing active observer. It provides effective force tracking at the master side with accurate position tracking at the slave side in the presence of inertial parameter variation and measurement noise. The proposed method only requires the measurement of robot position, and as a result significantly reduces the difficulty and cost of implementing bilateral teleoperation systems. The approach is described and its stability is analytically verified. The performance of the method is validated through computer simulation and compared with the Nicosia observer-based controller. According to the results, EAOB outperforms the Nicosia observer method and effectively rejects noise.