The so-called Quartet of Middle East negotiators has demanded that Israel halt all settlement activity and denounced Israel's plan to build new housing in East Jerusalem.
The Quartet's comments came at a news conference in Moscow on Friday, following a meeting by the group, which brings together the United Nations, the US, the EU and Russia.
Ban Ki-Moon, the UN secretary-general, read a joint statement by the group, saying that the Quartet "urges the government of Israel to freeze all settlement activities".
In the statement, the Quartet condemned "the decision by the government of Israel to advance planning for new housing units in East Jerusalem".
Ban also said that negotiations between Israel and the Palestinians should result in the resolution of the conflict within 24 months, and expressed concern over the situation in the Gaza Strip.
Saeb Erekat, the chief Palestinian negotiator, welcomed the Quartet's condemnation of Israeli settlement building, but said that the Quartet needed to monitor Israeli activities on the ground.
"The Israelis have the choice now, either to continue with settlement activities or to engage with the peace process," he told Al Jazeera.
"We want the Quartet to have the Israeli government, to monitor their actions, to monitor their activities on the ground, because they're playing many games of deceit on the ground - they say now 'we're not going to announce more settlements, but we're going to continue with settlements'. That is deceit.
"The Quartet must have mechanisms for implementation and monitors on the ground to make sure that the Israeli government complies with its obligations originating from the [2003 peace talks] road map.
"I don't think we can have a meaningful peace process without Israel stopping all settlement activities," he said.
The Quartet meeting comes amid rising tensions between Israel and the US over Israel's plans to build 1,600 new settler homes, a move announced during a visit to the country by Joe Biden, the US vice-president.
Settlement building in the occupied West Bank and in East Jerusalem is illegal under international law and has been one of the main stumbling blocks to talks between Israel and the Palestinians.
Avigdor Lieberman, the Israeli foreign minister, said that setting 2012 as a target for a peace deal with the Palestinians was "unrealistic" and would acting actually harm chances of reaching a deal.
"Peace cannot be imposed artificially and with an unrealistic calendar," he said.
"This type of statement only harms the possibilities of reaching an accord because it gives to the Palestinians the wrong impression that by failing to negotiate directly they will achieve their goals by using all sorts of pretexts."
Al Jazeera's Nour Odeh, speaking from the Qalandiya checkpoint in the occupied West Bank, said the Quartet's statement would likely fail to win over Palestinians as it had not included any provision for intervention if Israel failed to comply.
|Israel's settlement building is seen as a major stumbling block to peace talks [Reuters]
"There were no concrete measures, which is what Palestinians want first and foremost. No statement from the Quartet that if the situation doesn't get better, or if the parties don't comply, the Quartet will take such-and-such action," she said.
"There's an increasing sentiment here [in the Palestinian territories] that without strong, effective third party intervention there won't be any movement on the ground.
"And if the deadlock continues politically the tension we are seeing here will only get much worse."
In an apparent move to defuse tensions with the US over the settlements, a statement from the office of Binyamin Netanyahu, Israel's prime minister, said "mutual confidence-building measures"were being considered, but no details of those measures were given.
Netanyahu and Hillary Clinton, the US secretary of state, also reportedly discussed the issue in a 45-minute phone call in which Netanyahu responded to US concerns about the settlements.
At the Quartet's news conference, Clinton said the US decision to increase pressure on Israel over the settlements is bringing results.
"What I heard from the prime minister in response for the request we made was useful and productive, and we're continuing our discussions with him and his government," she said.
Earlier, in an interview with the BBC, Clinton said: "I think we're going to see the resumption of the negotiation track and that means that it is paying off because that's our goal.
"Let's get the parties into a discussion, let's (put) the principle issues on the table and let's begin to explore ways that we can resolve the differences."
The Israeli settlement announcement prompted the Palestinians to pull out of indirect "proximity" talks meditated by the US.
But Tony Blair, the Middle East envoy for the Quartet, said that there could be moves to get the negotiations restarted in the coming days.
"I hope very much that in the next few days we will have a package that gives people the sense that, yes, despite all the difficulties of the past few days, it is worth having proximity talks and then those leading to direct negotiations," he said.