A serious rift between the British and Israeli governments opened up this week during the visit of Binyamin Netanyahu to London, over the welcome given by David Cameron to the unity deal between Fatah and Hamas.
Israel is understood to be furious that William Hague and Mr Cameron had both made positive public statements about the new pact.
The agreement provides for a caretaker government in advance of Palestinian elections. The Israeli PM was particularly incensed by the presence of British EU High Representative Baroness Ashton at the signing ceremony.
Mr Cameron rearranged his diary at the last minute to fit in a private dinner on Wednesday evening with Mr Netanyahu at No 10, after the Israeli PM announced last week that he planned to visit Europe. It is a sign of the importance being given to the issue that the UK Prime Minister agreed to a meeting with Mr Netanyahu on the eve of local elections and the electoral reform vote.
Reports suggested that Britain believes Israel is dragging its heels over negotiations and that the UK is prepared to recognise the widely predicted Palestinian declaration of independence in September if that does not change.
A spokesman said that Mr Cameron told the Israeli PM that: "Any new Palestinian government must reject violence, recognise Israel's right to exist and engage in the peace process," and that "Britain would judge it by its actions".
Mr Netanyahu talked of the "great struggle under way between the forces of democracy and moderation and the forces of tyranny and terror . . . We think that moral clarity and political clarity mean these forces can win out and peace win out".
After meetings with his Egyptian opposite number on Monday, Mr Hague said: "We welcome the reconciliation and the work done by Egypt."
On Tuesday, Mr Cameron told Parliament: "We have to take the positive, optimistic view that, although there will be all sorts of difficulties ahead, Palestinian unity between Fatah and Hamas should be a step forward and we must make sure that it is."
The JC understands that UK diplomats in the region were taken by surprise by the statements, which are a departure from the official British position and the common line on Hamas held with the Americans. It remains a proscribed terrorist organisation in the UK.
Middle East Minister Alistair Burt subsequently emphasised that the UK expected the new caretaker government to adhere to the principles laid out by the Middle East Quartet in negotiations toward Palestinian statehood. These demand the recognition of Israel, the renunciation of violence and adherence to diplomatic agreements.
The comments came as Hamas condemned the US killing of "holy warrior" Osama bin Laden. Mr Netanyahu is understood to have expressed Israeli anger that the UK government had decided to welcome Fatah's deal with a terrorist organisation at the same time as standing shoulder to shoulder with the US over the shooting of bin Laden.
