In his final report to the Security Council as Middle East coordinator, Robert Serry said "I frankly do not know if it is already too late" to revive peace talks aimed at the establishment of a Palestinian state.
"The minimum conditions of trust cannot be restored without the new Israeli government taking credible steps to freeze settlement activity," the Dutch diplomat told the 15-member council.
Serry, who served seven years as the UN's point man on the Middle East, said the Security Council could step in to present a "framework for negotiations, including parameters" to achieve peace.
The appeal from the top UN envoy came as Netanyahu began talks on forming a new government after vowing in a campaign speech that he would never allow the establishment of a Palestinian state under his watch.
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The Israeli prime minister later backtracked on his comments but the US administration appeared unconvinced while UN Secretary General Ban Ki-moon urged Netanyahu to renew his commitment to a two-state solution.
"Illegal settlement activity cannot be reconciled with the objective of a negotiated two-state solution and may kill the very possibility of reaching peace on the paradigm of two states for two peoples," Serry said.
The envoy said he was concerned by Netanyahu's pre-election remarks and urged the incoming Israeli government to "quickly demonstrate in words, and more importantly by actions" a commitment to peace.