"I strongly suggested and urged them to sit down together," Ban told reporters after his return from the Middle East, where he met separately with Israeli Prime Minister Benjamin Netanyahu and Palestinian president Mahmud Abbas.
"There is no substitute to direct talks."
Ban's visit to the region came amid sharp tensions over a series of violent attacks that have left several Israelis and Palestinians dead.
Ban stressed the need for a de-escalation in the region, saying that "the level of incitement is utterly unacceptable."
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Ban had earlier warned that a "dangerous escalation" could lead to a full-scale Palestinian uprising.
He reported to the Security Council on Wednesday that he was "not optimistic" following his talks in the region.
But he said today that "despite the anger and polarization, there is still time to step back from the brink."
He exhorted both Netanyahu and Abbas to take careful steps toward de-escalation.
And he said he had urged Abbas "to harness the energy and passion of the people, particularly young people, towards a peaceful direction" rather than "resorting to violent means."
Ban said that his special envoy for the peace process, Nickolay Mladenov, would visit both Israel and the Palestinian territories soon "to explore significant steps that each side can take to restore confidence and move towards an end to occupation and the establishment of a viable, sustainable Palestinian state.