The US Secretary of State has accused Israel of threatening peace in the Middle East in some of America's harshest-ever public criticisms of its key ally.
John Kerry said Israel was not interested in finding a two-state solution to its conflict with the Palestinians and "believe in one state: greater Israel".
Mr Kerry said the US would have been guilty of a "dereliction of duty" if it had vetoed the UN vote to condemn Israeli settlements last week.
And he added that just because the US was Israel's ally it didn't mean it would stand by and not do anything when the future of Middle East peace was under threat.
In his final speech on the Middle East peace process, Mr Kerry said: "No one thinking seriously about peace can ignore the reality of the threat settlements pose to peace.
"But the problem goes well beyond just settlements. Trends indicate a comprehensive effort to take West Bank land for Israel and prevent any Palestinian development there."
He added: "The settler agenda is defining the future in Israel. And their stated purpose is clear: They believe in one state: greater Israel."
Israeli Prime Minister Benjamin Netanyahu hit back in a short statement after the US Secretary of State's speech calling it "biased" and saying it "obsessively" focused on settlements and ignored the root of the conflict between to two sides.
Mr Kerry said in his speech that the only hope for the future was a two-state solution for Israel and the Palestinians and that the UN was right to condemn the building of settler homes in the West Bank.
He urged Israel and the Palestinians to agree a two-state solution based on land occupied before the six-day war in 1967.
The US refusal to veto the UN vote was seen by some as a parting shot from outgoing US President Barack Obama to his successor Donald Trump, just weeks before the latter's inauguration on 20 January.
It has sparked a war of word with Mr Trump tweeting on Wednesday: "We cannot continue to let Israel be treated with such total disdain and disrespect. They used to have a great friend in the U.S but..."
He also tweeted: "Doing my best to disregard the many inflammatory President O statements and roadblocks. Thought it was going to be a smooth transition - NOT!"
In the immediate wake of the vote last week, Mr Trump, who had wanted to US to veto the vote to condemn the building of settler homes, said things at the UN would "be different after Jan. 20th."
Mr Netanyahu he was looking forward to working with Mr Trump and effectively set out a wishlist for the President-elect that the US would not allow any further UN resolutions against Israel.
Mr Kerry said Mr Obama had been committed to Israel and to the peace process but said: "Despite our best efforts over the years, the two-state solution is now in serious jeopardy.
"We cannot, in good conscience, do nothing, and say nothing, when we see the hopes of peace slipping away."
Mr Kerry said the US "did not draft or originate" the UN resolution on settlement and earlier it had been confirmed the UK had helped draft the resolution and played a key role in brokering it.
However, Mr Netanyahu said he had evidence the US was behind the resolution.
Palestinian president Mahmoud Abbas said he was ready to resume peace efforts when settlement building was frozen.
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