Israel should end its settlement activities in the West Bank if it is serious about a two-state solution in the Middle East, world powers said in a highly anticipated report published Friday, issuing recommendations for both sides in the conflict.

The so-called Middle East Quartet - the United Nations, the European Union, the United States and Russia - issued the report amid renewed international efforts to revive Middle East peace talks. The last attempt, led by the US, collapsed in April 2014.

"We need to shake life back into the peace process, and do it as a matter of urgency," said EU foreign policy chief Federica Mogherini, adding that with violence on the rise, Israelis and Palestinians are losing hope.

Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas have both expressed support for a two-state solution, but the report warns that "continuing on the current course will make this prospect increasingly remote."

Violence has flared up since 2014, and Israel has faced mounting criticism over its settlement activities in the West Bank and East Jerusalem.

Ongoing settlement-building, the earmarking of land for Israeli use and the denial of Palestinian development is "steadily eroding the viability of the two-state solution," the quartet says in the report.

They note that around 70 per cent of Area C, a part of the West Bank under Israeli military and civilian control, "has been unilaterally taken for exclusive Israeli use."

"This raises legitimate questions about Israel's long-term intentions, which are compounded by the statements of some Israeli ministers that there should never be a Palestinian state," the quartet adds.

However, Israel quickly rejected the call to end settlement activity on the West Bank, according to a statement from Netanyahu's office.

"When Israel stopped settlement construction, it didn't get peace," the statement said. "When Israel uprooted every settlement in Gaza, it didn't get peace. It was war."

The four entities also recommend that the Palestinian authorities take steps to "cease incitement to violence and strengthen ongoing efforts to combat terrorism."

Since October, Palestinians have carried out more than 250 attacks and attempted attacks, killing at least 30 Israelis, the report notes.

In the latest instance of violence on Thursday, a 13-year-old Israeli girl, also holding a US passport, was stabbed to death in her bedroom by a 19-year-old Palestinian man who infiltrated a Jewish settlement on the West Bank.

The report also condemns an illicit arms build-up and militant activity in Gaza which - coupled with a lack of Palestinian political unity and a dire humanitarian situation in the strip - "feed instability" and stand in the way of a negotiated solution to the conflict.

The Quartet issued a total of 10 recommendations to both sides, aimed at recreating the conditions for talks to resume on what a two-state solution could look like.

The Quartet also welcomed a recent appeal by Egyptian President Abdel-Fattah al-Sissi for progress towards peace between Israel and the Palestinians, as well as French efforts to hold an international conference by the end of the year.

The Palestinians said they were disappointed by the report.

"It does not meet our expectations as a nation living under a foreign colonial military occupation; wherein it attempts to equalize the responsibilities between a people under occupation and a foreign military occupier," said Saeb Erekat, secretary general of the Palestine Liberation Organization.

Israel too was critical, saying the report did not refer to the "true essence" - in Israel's view - of the Middle East conflict: that the Palestinians do not recognize Israel today as a Jewish state. Israel noted that peace could only be achieved through direct, bilateral negotiations with the Palestinians.

UN Secretary General Ban Ki-moon called on both parties to "engage" with the Quartet on implementing the recommendations, stressing that negative trends on the ground need to be reversed by both sides taking "affirmative steps," Stephane Dujarric, Ban's spokesman, said.

An EU official, who spoke to reporters on the condition of anonymity, said that the report's recommendations were based on previous agreements and were not meant to assign blame.

"The whole point is that it is not a blame game, it's an attempt to find some common ground," the official said.

"This is a report to explain that there is no alternative to the two-state solution. The alternative is what we see every day. It is something that cannot work."

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