Australia has distanced itself from the Obama administration over its escalating diplomatic stoush with Israel, suggesting it would not have supported a UN resolution condemning Jewish settlements in the West Bank and East Jerusalem.

Key points: US Secretary of State John Kerry says Israel's settlements on occupied land jeopardise peace in Arab world

US Secretary of State John Kerry says Israel's settlements on occupied land jeopardise peace in Arab world UN resolution demands end to settlements

UN resolution demands end to settlements Julie Bishop says Australia remains committed to a two-state solution

Israel's building of settlements on occupied land is jeopardising Middle East peace, US Secretary of State John Kerry said on Thursday, voicing unusually frank frustration with America's longtime ally weeks before he is due to leave office.

Last Friday Washington effectively cleared the way for a UN resolution that demanded an end to Israeli settlement building, prompting Israeli Government officials to direct harsh attacks against Mr Obama and Mr Kerry.

Israel also recalled its ambassador to New Zealand for consultations after it co-sponsored the resolution, which argued the settlements had "no legal validity and [constituted] a flagrant violation under international law".

In a statement to the ABC, Foreign Minister Julie Bishop reiterated that the Australian Government remained "firmly committed to a two-state solution, where Israel and a Palestinian state exist side-by-side in peace and security, within internationally recognised borders".

"Australia urges both sides to refrain from steps that damage the prospect for peace and to resume direct negotiations for a two-state solution as soon as possible," the statement added.

Ms Bishop also noted that Australia was not currently a member of the Security Council and was not eligible to vote on the resolution, but indicated the Federal Government did not support the contentious move.

"In voting at the UN, the Coalition Government has consistently not supported one-sided resolutions targeting Israel," the statement read.

Netanyahu says Israel does not need to be lectured to

Earlier, Mr Kerry said Israel would "never have true peace" with the Arab world if it did not reach an accord based on Israelis and Palestinians living in their own states.

Sorry, this video has expired Kerry says US 'cannot be expected to defend' Israel's settlements

In response, Israeli Prime Minister Benjamin Netanyahu said Israel did not need to be lectured to by foreign leaders and that he looked forward to working with US President-elect Donald Trump, who has vowed to pursue more pro-Israeli policies.

"We cannot continue to let Israel be treated with such total disdain and disrespect," Mr Trump wrote on Twitter.

"They used to have a great friend in the US, but not anymore. The beginning of the end was the horrible Iran deal, and now this (UN)!

"Stay strong Israel, January 20th is fast approaching!"