Britain today summoned the Israeli ambassador amid deepening international anger at fresh Israeli settlement expansion plans.
The Foreign Office does not deny reports that that Britain and France are considering withdrawing their ambassadors from Israel.
Israel's response to the Palestinians' crushing diplomatic victory at the United Nations late last night is provocative.
Foreign Secretary William Hague said Israeli settlement extension plans would make a two-state solution "almost inconceivable." He said:
We think that is the wrong way to react to what happened much as we had misgivings for some of these reasons about pressing a resolution at the United Nations, now that is the wrong way to react to that and that message is coming loud and clear from all around Europe and the United States as well.
If implemented, these plans that were announced on Friday would alter the situation on the ground on a scale that makes the two-state solution, with Jerusalem as a shared capital, almost inconceivable, very, very difficult to implement in the future
Foreign Secretary William Hague said the possibility of European sanctions on Israel in response to their new settlement plans is "not an option."
International anger over Israeli settlement plans has grown over the past few days, with Australia becoming the latest country to summon Israel's ambassador to explain the plans, which could erode the possibility of a viable Palestinian state.
Jerusalem announced plans to build 3,000 homes in settlements on war-won land, as well as preparations for construction of an especially sensitive project near Jerusalem, known as E-1.
E-1 would include 3,500 homes, and would cut off east Jerusalem from the rest of the West Bank, and drive a wedge between the northern and southern West Bank. A senior Palestinian aide said Israel's illegal actions would force the newly-upgraded state to go to the International Criminal Court:
"By continuing these war crimes of settlement activities on our lands and stealing our money, Israel is pushing and forcing us to go to the ICC."
The Obama administration harshly criticised its top Middle East ally Israel today over new settlement construction plans in areas the Palestinians claim for a future state.
White House press secretary Jay Carney said:"We urge Israeli leaders to reconsider these unilateral decisions and exercise restraint as these actions are counter productive and make it harder to resume direct negotiations to achieve a two-state solution."
Speaking after summoning the Israeli Ambassador to the UK to the Foreign Office, Minister for the Middle East, Alistair Burt, said Daniel Taub had been asked to attend following the Israeli decision to build 3,000 new houses in East Jerusalem and the West Bank.
Mr Burt added: "I set out the depth of the UK’s concern about these decisions and I called on the Israeli government to reverse them. The settlements plan in particular has the potential to alter the situation on the ground on a scale that threatens the viability of a two state solution.
“I also made clear the strength of our reaction stems from our disappointment that the Israeli Government has not heeded the calls we and others had made for Israel to avoid reacting to the UN General Assembly resolution in a way that undermines the Palestinian Authority or a return to talks.”
An Israeli official has told the news agency Reuters that Israel will not backtrack on its settlement expansion plans.
French President Francois Hollande said he does not want to start imposing sanctions on Israel despite it announcing plans to expand settlement building in occupied territories.
Mr Hollande, who was at a news conference with Italian Prime Minister Mario Monti, said: "We don't want to shift into sanctions mode.
"We are more focused on convincing."