The interview with Israeli TV program "Uvda" comes 10 days before Obama, who has been an outspoken critic of Israeli settlements, hands over to President-elect Donald Trump, who is expected to pursue a starkly different approach to the conflict. Trump's election has buoyed Israeli Prime Minister Benjamin Netanyahu and his pro-settler government.
"If the notion is that unfettered support for Israel or more specifically support for the Netanyahu government's policies no matter what they are, no matter how inimical they may be to the prospects for peace if that's what qualifies as a good friend, then I think that we will see a worsening situation over time," Obama said during the interview, filmed in Washington last week.
The White House has denied the allegations, and Israel has not publicly provided evidence to back them up.
Obama defended the abstention in the interview, saying "I believe it was the best move for peace."
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Nearly 600,000 settlers now live in the West Bank and east Jerusalem, territories the Palestinians want as part of a future state. Much of the international community as well as the Palestinians view settlements as illegitimate and an obstacle to peace. Netanyahu routinely dismisses international criticism of the settlements, saying the conflict predates them.
He has appointed an ambassador to Israel with deep ties to the settlements and he has pledged to relocate the US Embassy to Jerusalem, a move likely to enflame tensions and anger the Palestinians.
Most recently, Trump has appointed his son-in-law, Jared Kushner, as a senior adviser expected to focus on Middle East issues, including the Israeli-Palestinian conflict. Kushner's family's foundation has supported settlement causes.