• US secretary of state praises concessions by Israel • 'Israel can get away with anything,' claims Arab League

Hillary Clinton, the US secretary of state, sought to deflect the anger and disappointment of pro-western Arab states today after backing Israel's position that it did not need to freeze settlement activity as a prelude to resuming peace talks with the Palestinians.

Clinton was due to meet foreign ministers from Saudi Arabia, Egypt and other key Arab states at a G8 conference in Morocco after brief talks in Jerusalem and Ramallah at the weekend. In what appeared to be a significant policy shift she publicly supported the position taken by Binyamin Netanyahu, Israel's Likud prime minister, and even praised him for making "unprecedented" concessions.

Amid mounting concern that Barack Obama's much-heralded engagement with the Middle East peace process is going nowhere fast, Arab leaders expressed their fury at Clinton's endorsement of Israel's argument that it is not required to halt settlement activity in the West Bank and East Jerusalem, as the administration had previously demanded. The Palestinian Authority, Jordan and Egypt all protested.

Speaking in Marrakech she qualifed her remarks to say that Netanyahu's offer of "restraint" on settlements fell short of US expectations but would still have a "significant and meaningful effect" on limiting the growth of Jewish outposts on land the Palestinians want for their own state.

But she clearly faced an uphill struggle in convincing Arab states that Washington has not changed tack in favour of Israel.

Earlier today Amr Moussa, the secretary general of the Arab League, said: "I am telling you that all of us, including Saudi Arabia, including Egypt, are deeply disappointed … with the results, with the fact that Israel can get away with anything without any firm stand that this cannot be done."

Moussa had previously refused to say that he was disappointed with Obama, but he warned: "I am really afraid that we are about to see a failure."

Under the 2003 "road map" Israel is required to freeze all settlement activity, a position initially supported by Obama. Netanyahu's offer of "restraint" is coupled with an insistence on enabling "normal life" for 500,000 Jewish settlers in the West Bank and East Jerusalem.

Israel refuses to treat the eastern half of the city, which it annexed immediately after its 1967 victory, as occupied territory, arguing that it is exempt from a freeze.

Ghassan al-Khatib, the head of the Palestinian government's press office, said: "From our point of view and from the point of view of international law, and according to the road map, Israel has to first to stop the expansion of settlements in order to contribute to preparing the ground for meaningful peace negotiations."

There were harsher comments from Nabil Abu Rudeineh, spokesman for Palestinian president Mahmoud Abbas: "The negotiations are in a state of paralysis, and the result of Israel's intransigence and America's backpedalling is that there is no hope of negotiations on the horizon."

Abbas, the leader of the western-backed Fatah movement, is under heavy domestic pressure in advance of Palestinian elections due at the beginning of 2010 and sensitive to criticism from the Islamists of Hamas who control the Gaza Strip.

Israelis on the left joined in criticism of Clinton's remarks. "The secretary of state, I assume with the full support of the president, has turned around after 10 months of negotiating the precondition of freezing settlements," said Akiva Eldar in the Haaretz newspaper.

Clinton is in Marrakech for the Forum for the Future, which joins civil society groups and the private sector with foreign ministers from the G8 and the Middle East to talk about democracy and conflict resolution. Morocco is co-hosting the forum with Italy, which holds the G8 presidency.