Britain and France have condemned a plan by Israel to expand settlements in the occupied West Bank and East Jerusalem.
Both countries argued that international confidence in its desire to make peace with the Palestinians was at risk.
Stung by a UN vote according recognition to a Palestinian state, Israel on Friday said it would build thousands of new settler homes, including in a wedge zone between Jerusalem and the West Bank, known as E1.
The US, one of just eight countries to vote alongside Israel against the Palestinians at the UN General Assembly, said the latest expansion plan was counterproductive to any resumption of direct peace talks stalled for two years.
France, which voted with the Palestinians, and Britain, which abstained, had tougher censure for Israel, which wants to keep all of Jerusalem and swathes of West Bank settlements under any future peace accord.
Most powers view the settlements as illegal for taking in land captured in the 1967 Middle East war.
"If implemented, these plans would alter the situation on the ground on a scale that makes the two-state solution, with Jerusalem as a shared capital, increasingly difficult to achieve," British Foreign Secretary William Hague said in a statement.
"They would undermine Israel's international reputation and create doubts about its stated commitment to achieving peace with the Palestinians."
Hague's French counterpart, Laurent Fabius, spoke of E1 as "the new colonisation zone" and said the Israeli expansion plan could "drain the confidence needed for a return to dialogue".
"I call upon the Israeli authorities to abstain from any decision in this direction and to manifest clearly their desire to restart negotiations," Fabius said in a statement.
Israel says Thursday's upgrade of the Palestinians' status at the United Nations to "non-member state" from "entity" could allow them to sidestep disputes such as territorial demarcation that should be addressed in negotiations.
The Israelis were further incensed by what they deemed an inflammatory UN speech by Palestinian President Mahmoud Abbas, and said the upgrade resolution neglected the Jewish state's security and need for its own sovereignty to be recognised.
Mr Abbas also claims the Palestinian sovereignty in Gaza, but the coastal strip is ruled by rival Hamas Islamists who are deeply hostile to the Jewish state and fought an eight-day war against it last month.
The Israeli settlement plan was disclosed to the media by officials in Prime Minister Benjamin Netanyahu's conservative government who spoke on condition of anonymity, a reticence suggesting the expansion had not been formally finalised.
One of six Palestinians shot and wounded by Israeli troops yesterday while protesting at the Gaza boundary fence died this morning, hospital officials said.
The fortified fence and a 300-metre-deep zone on the Palestinian side have been a testing ground for the 21 November truce that ended an eight-day surge in Gaza fighting.
Israel has regularly fired on the fence since 2009 with the declared aim of keeping gunmen and infiltrators away from the border.