A senior Israeli minister has warned that the "whole world", led by the United States, may back a unilateral declaration of Palestinian statehood if Israel does not commit to peace talks.
Binyamin Ben-Eliezer, the Trade and Industry Minister and a veteran Labour Party politician, said talks with the Palestinians must resume, even if Israel were forced to renew a freeze on settlement construction in the West Bank.
His warning, delivered to cabinet colleagues on Sunday, is the first admission by a senior Israeli official of a potential rift with its key ally.
"Fuad" Ben-Eliezer said: "We must do everything possible to get to dialogue with the Palestinians, even if it costs us a settlement freeze for a few months.
"I wouldn't be surprised if within one year the whole world supports a Palestinian state, including the United States. Then we'll ask where we were, and what we were not doing."
Palestinian officials have threatened to go to the UN Security Council to unilaterally declare statehood if renewed negotiations fail to materialise.
Four Latin American states, including Brazil, have officially recognised a Palestinian state, inside the pre-1967 borders, in recent weeks.
Palestinian Prime Minister Salam Fayyad is expected to complete a two-year plan to create a de facto state inside the West Bank in summer 2011.
Washington has previously said it would not back an anti-settlement resolution being prepared by the Palestinians to present to the UN, but other countries are known to be frustrated by the deadlock in talks and rate of settlement expansion.