Tony Blair has said Israel and the Palestinians have "no alternative" other than a return to the peace process.
The Quartet's Middle East envoy said it was crucial to support the Palestinian economy in order to advance the possibilities of success in the process.
He cited economic growth in the West Bank and the Palestinian Authority's efforts to build infrastructure as evidence of "real change".
Mr Blair said the Israeli position was less understood by the international community and described President Obama's peace plans and speech last week on the Middle East as proof of the need to act as soon as possible.
The Arab Spring had created a "short-term challenge because of the unpredictable, unstable, uncertain, situation", the former Prime Minister said.
Mr Blair said: "We must redouble our efforts, bearing in mind that this last few years have taught us that state-building does work and makes a real difference. We refuse to give up hope on this.
"If we do not stand up and move this forward then we will find, within months, the situation is impossible."
A year after the Gaza flotilla incident in which nine Turkish activists were killed, Mr Blair said he backed Israel's actions to defend the country.
He said: "I'm completely supportive of Israel when it comes to checking boats to protect its security."
Mr Blair's comments came at an event organised jointly by UK Israel Business, the Portland Trust and the Palestine Britain Business council. He spoke alongside businessman Sir Ronald Cohen.