Nickolay Mladenov told the Security Council that the current wave of violence "which is tearing Israelis and Palestinians apart" is another factor "dangerously imperiling" the two-state solution.
He said the Quartet of Mideast mediators the UN, US, European Union and Russia believes that a two-state solution remains the best path to peace and is stepping up efforts to break the political impasse.
Mladenov said Quartet envoys are preparing a report that will review the situation on the ground, identify dangers to a two-state solution and make recommendations on the way forward. He told reporters the Quartet hopes to complete the report in the next few months.
He said Israel must also understand "that building more walls, administrative detentions, punitive demolitions and movement restrictions all breed anger among people who feel they are being collectively humiliated, punished and discriminated against."
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Mladenov, the special coordinator for the Middle East peace process, said it is clear that security measures alone won't contain "the forces" perpetuating the recent violence and that heavy-handed responses play into the hands of extremists.
"We only need to look at the rest of the region to see the dangers of religious extremism, sectarianism and terrorism," he warned.
Mladenov stressed that the current security challenges cannot be addressed without tackling the inability to achieve Israeli-Palestinian peace.
"The time has come to ring the alarm bells that the two-state solution is slipping from our fingers, that it is disappearing as the realities on the ground ... Make the prospect of a viable and independent Palestinian state less possible and less likely," he said.