Defence Minister Ehud Barak told the annual American Israel Public Affairs Committee (Aipac) conference on Sunday that Israel would consider taking "unilateral steps" to solve ongoing tensions with the Palestinians in the absence of a "reasonable, fair, interim agreement".

In one of the conference’s opening speeches, Mr Barak also said that Iran's nuclear programme posed "the greatest challenge facing Israel".

Mr Barak is due to meet the recently appointed Defence Secretary Chuck Hagel after the Israeli minister delivers his second speech at the conference tomorrow.

They are expected to discuss the threat posed by Iran and ongoing diplomatic relations between the US and Israel, as well as possible cuts in US defence funding for Israel, which could amount to $300 million.

Mr Hagel has criticised Israel's policies in the past and has spoken against a strike on Iran.

Israeli ambassador to the US Michael Oren also spoke at the conference on Sunday and said US President Barack Obama's visit to Israel next month would be "a new beginning" and cement diplomatic relations between the two nations.