John Kerry has delivered his most impassioned speech on the Israel-Palestinian crisis - saying Benjamin Netanyahu’s government is the most right-wing in Israeli history, with an agenda driven by extreme elements.

Insisting that a two-state solution is the only way to achieve peace in Middle East, Mr Kerry said Israel would never secure a lasting deal with Arab countries, if it opted for the one-state option.

“If the choice is one state, Israel can either be Jewish or Democratic,” he said, speaking at the State Department in Washington. “It cannot be both.”

Secretary of State John Kerry speaks about Israeli-Palestinian policy (AP)

Mr Kerry’s speech represented the final effort by the Obama administration to try and shape things in the Middle East, after President-elect Donald Trump assumes office on January 20.

Last week, the US outraged Israeli Prime Minister Benjamin Netanyahu by permitting the UN Security Council to rebuke Israel over the building of Jewish settlements in Palestinian territories. It did so, by abstaining from the vote, rather than using its veto, as it has repeatedly in the past to protect Israel.

Mr Netanyahu and Mr Trump combined in criticising the decision. But Mr Kerry said it had been obliged to stand up for something important. He said the “settler agenda is defining the future of Israel”.

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“The United States did in fact vote in accordance with our values, just as previous administrations have done,” Mr Kerry said. “The vote in the United Nations was about preserving the two-state solution. That's what we were standing up for.”

Mr Kerry pointed to the official position of Mr Netanyahu, who has said he supports a two-state solution. Yet, the top US diplomat said that the Israeli leader was allowing himself to he directed by extremists in his government - “the most right-wing in Israel's history”.

The Associated Press said the speech of the 73-year-old Mr Kerry marked the latest escalation in a bitter row between the US and Israel that has erupted in the last days of Mr Obama’s administration. The display of discord between allies - with US and Israeli officials openly disparaging each other - has also pitted President Barack Obama against President-elect Donald Trump, who has firmly taken Mr Netanyahu’s side.

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Mr Kerry has spent much of the three-and-half-years since he was appointed secretary of state in pursuing three global problem - the Syrian civil war, the Iran nuclear deal and the Israel-Palestinian conflict. He has succeeded in securing only one of them.

As a result, Wednesday’s speech was effectively his last opportunity law out his vision for a Middle East peace. He did so, point by point, trying to rebut the arguments Israel has used to defend the settlements.

He warned that Israel was at risk of a permanent occupation of Palestinian territory, drawing a pointed reference to America's own history of racial segregation.

“Separate and unequal is what you would have, and nobody can explain how that works,” he Kerry.

Mr Kerry reiterated that the Obama administration’s commitment to Israel was as strong as that of previous presidents. He emphasised the record levels of military assistance the US has provided Israel under Mr Obama, codified by a 10-year aid deal recently struck worth $38bn.

“No American administration has done more for Israel's security than Barack Obama’s,” Mr Kerry said.

Israeli leaders expect Mr Trump to change US policy, and the President-elect assured them hours before Mr Kerry's speech that they just needed to “hang on” until January 20, when he would be sworn in as president.