The United States on Tuesday questioned Israel's interest in pursuing peace with the Palestinians as its key ally in the Middle East region has hardened its position on settlement building on the occupied land.

At a press briefing, State Department spokeswoman Victoria Nuland said "With regard to the larger settlement issue and statements recently and actions on the ground, we are deeply disappointed that Israel insists on continuing this pattern of provocative action."

"These repeated announcements and plans of new construction run counter to the cause of peace. Israel's leaders continually say that they support a path towards a two-state solution, yet these actions only put that goal further at risk," she added.

Israel has refused to bow to pressure from around the world, including from Washington and European capitals, over its fresh plans to build thousands more homes in east Jerusalem and the West Bank unveiled right after the Palestinians won an upgraded status of non-member observer state at the UN General Assembly late last month.

Israeli Prime Minister Benjamin Netanyahu reiterated on Tuesday "Jerusalem is the eternal capital of the state of Israel, and we will continue to build there."

The issue of settlement building on the occupied land is a major obstacle to restarting direct negotiations between the Israelis and the Palestinians, and scuttled the last round of talks only weeks after they were launched amid fanfare in Washington in early September 2010.

The Palestinians want an independent state set up in the West Bank and the Gaza Strip, with east Jerusalem as its capital.

"We again call on Israel and the Palestinians to cease any kinds of counterproductive, unilateral actions, and take concrete steps to return to direct negotiations," Nuland said.

"But, again, we are not in a good cycle here. We need to break this cycle, end the provocative actions, and get these parties back to the table," she added.

Some European nations were pushing for a resolution through the UN Security Council condemning Israel's position on settlement building on the occupied land.