Two state solution the only path to Israeli-Palestinian peace — Kerry

US Secretary of State John Kerry insisted on Wednesday that the only way to secure a lasting peace between Israel and Palestinians is to negotiate a two-state solution to their conflict.

Kerry laid out six principles that according to him were the basis on which the US decided last week not to veto a UN Security Council vote to condemn Israeli settlement building.

"The vote in the UN was about preserving the two-state solution," he said.

"Despite our best efforts over the years, the two-state solution is now in serious jeopardy," Kerry said in a speech at the State Department. "We cannot, in good conscience, do nothing, and say nothing, when we see the hope of peace slipping away."

He said that Israel's settlement building in the West Bank threatens both hope for peace with the Palestinians and the country's own future as a democracy.

"That's what we were standing up for: Israel's future as a Jewish and democratic state, living side by side in peace and security with its neighbours," he said.

Kerry warned that Israel was on a course leading to a "perpetual occupation" of Palestinian-owned land.

"Today, there are a similar number of Jews and Palestinians living between the Jordan River and the Mediterranean Sea," Kerry told an audience of diplomats in Washington.

"They have a choice. They can choose to live together in one state, or they can separate into two states," he said.

"But here is a fundamental reality: if the choice is one state, Israel can either be Jewish or democratic — it cannot be both— and it won't ever really be at peace."

Kerry slams conspiracy theories

John Kerry hit back against Israeli claims that Washington conspired behind its back to push the United Nations resolution condemning its settlements.

In a clear message to Prime Minister Benjamin Netanyahu's government, Kerry suggested that the charge — which he firmly denied — could harm Israel's relationship with its most important ally.

"Ultimately, it will be up to the Israeli people to decide whether the unusually heated attacks that Israeli officials have directed toward this administration best serve Israel's national interests and its relationship with an ally that has been steadfast in its support," Kerry said.

"Those attacks, alongside allegations of a US-led conspiracy and other manufactured claims, distract and divert attention from what the substance of this vote really was about."

The UN Security Council adopted a historic resolution on December 23 demanding an end to Israeli settlements on Palestinian land.

New Zealand, Malaysia, Senegal and Venezuela proposed the resolution. Israel's strongest ally, the United States abstained from the vote allowing it to pass by a vote of 14 in favour in the 15-member council.

In reaction, Israel summoned the US ambassador to Tel Aviv and ambassadors from other Security Council member states including Britain, China, Russia, France, Egypt, Japan, Uruguay, Spain, Ukraine and New Zealand to discuss the UN vote. All countries had supported the resolution.