Dugard said the UN should withdraw from the Quartet - a grouping comprising the UN, the US, EU and Russia - unless those concerns are addressed.
For instance, the Quartet has never even mentioned the 2004 advisory opinion of the International Court of Justice, which sets out the legal framework for dealing with the Palestinian territory, he said.
Dugard, a South African law professor who is the UN's special rapporteur on human rights in the Palestinian territories, said: "If the UN is not able to persuade other members of the Quartet, particularly the US, to acknowledge that Israel is a serious violator of human rights and is in serious violation of international law, then the UN should give serious consideration to withdrawing from the Quartet."
Dugard's warning coincides with the arrival of Rice on her seventh trip this year to the region, this time to prepare for the US-sponsored peace summit in Annapolis, Maryland, in late November.
"The question is will Fatah be strong enough to contain such a powerful 'partner' or will it be just exploited and eroded over time?
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Al Jazeera's David Chater, reporting from the West Bank city of Ramallah, said that Rice would be taking note of Dugard's comments.
One of the points Dugard raised was that hopes are being fanned in a large way by the ongoing talks, and if those hopes are frustrated, that could lead to a third intifada, Chater said.
Rice held a lengthy meeting with Abbas on Monday in Ramallah despite playing down hopes of a breakthrough.
Her convoy swept into the Palestinian leadership compound after being briefly held up because of security concerns about a suspect car on the road from occupied Jerusalem.
It turned out to be a false alarm, news agencies said.
Rice earlier cautioned that Israel's plan to seize Palestinian land in East Jerusalem could damage confidence in Annapolis meeting on Palestinian statehood.
Before her arrival in Jerusalem on Sunday, she said that Israeli clarifications that the project was to ease Palestinian movement did little to ease concerns.
The land is being confiscated to build a road linking Palestinian areas cut off by the route of the separation barrier.
Palestinians say the plan threatens the ability to create an independent state in the West Bank.
Rice on Sunday discussed the land seizure with Ehud Barak, the Israeli defence minister, as well as ways to ease restriction on Palestinians travelling across the occupied West Bank, an Israeli official said.
She then held talks with Ehud Olmert, the Israeli prime minister, and the leaders of Israel's main political parties before having dinner with Salam Fayyad, the Palestinian prime minister in the West Bank government.
|Rice discussed the latest Israeli land seizure|
with Barak in Jerusalem on Monday [AFP]
But even before she began her meetings, Olmert suggested that an outline agreement was not necessary for the conference to go ahead.
The goal "is to arrive at a joint statement during the international conference, even though the existence of such a statement was never a condition for holding this conference," Olmert said.
Israeli and Palestinian negotiating teams have already begun discussing the document which is expected to address "core issues", such as borders, sovereignty over disputed Jerusalem and a solution for Palestinian refugees.
Israel is pressing for a vaguely worded document that would give it more room to manoeuvre, while the Palestinians want a detailed preliminary agreement with a timetable for creating a Palestinian state.