United Nations (CNN) -- The United States vetoed Friday a U.N. Security Council resolution that would have declared Israeli settlements in the West Bank illegal.

U.S. Ambassador to the United Nations Susan Rice said that while the United States agrees about "the folly and illegitimacy of continued Israeli settlement activity, we think it unwise for this council to attempt to resolve the core issues that divide Israelis and Palestinians."

The veto is the first to be used under the Obama administration.

Ambassador Riyad Mansour, the permanent observer of Palestine to the United Nations, objected to the veto in a statement following the vote.

"The proper message that should have been sent by the Security Council to Israel, the occupying power, is that its contempt of international law and the international community will no longer be tolerated," he said. "We fear, however, that the message sent today may be one that only encourages further Israeli intransigence and impunity. This must be remedied."

Rice noted conversations in recent days between U.S. and Palestinian leaders in an attempt to compromise on the issue of Israeli settlements.

"In recent days, we offered a constructive alternative course that we believe would have allowed the council to act unanimously to support the pursuit of peace," she said. "We regret that this effort was not successful and thus is no longer viable."

Israel praised the veto, saying in a statement that the decision "contributes to the resumption of the diplomatic process and (it) regrets that the other Security Council members have refrained from making the same contribution."

U.S. President Barack Obama on Thursday called Palestinian Authority President Mahmoud Abbas to discuss the resolution and speak about alternatives to a Security Council vote, according to a diplomatic source. Among the options that had been floated, American and Palestinian officials said, was the issuance of a Security Council presidential statement, which is weaker than an actual resolution.

Obama told Abbas that if he didn't withdraw the resolution, it would put the United States in an awkward position and that U.S.-Palestinian relations would suffer as a result, the source said.

"Well, there were attempts at persuasion, (but) let me put it politely: We are even more persuaded by the rights of the Palestinian people," said Hanan Ashrawi, a veteran Palestinian legislator and Palestine Liberation Organization executive committee member. "We are more committed to international law and to the requirements of peace, and all these require that settlement activity should stop and that the Security Council should take a resolution condemning all settlement activities as being illegal and as being in direct contradiction of the requirement of peace."

The PLO met Friday and decided to move forward with the vote, the diplomatic source said, adding that Abbas felt that at a time when so many leaders are either being toppled or facing massive protests, it would make him look weak if he opted for an alternative course.

The Palestinian territories have not had the kinds of demonstrations seen in many Arab countries, but the Fatah leaders of the Palestinian Authority have been under criticism since Al-Jazeera published secret papers claiming to reveal that Palestinian officials were prepared to make wide-ranging concessions in negotiations with Israel.

The Obama administration has been critical of Israeli settlement construction but has not gone as far as to call it "illegal."

Rice reaffirmed the U.S. stance Friday, saying after the vote that Friday's veto should not be "misunderstood to mean we support settlement activity."

"On the contrary, we reject in the strongest terms the legitimacy of continued Israeli settlement activity," she said.

Since the breakdown of American-brokered talks with Israel in September over the issue of settlements, the Palestinian Authority has been pursuing a policy aimed at unilaterally declaring a Palestinian state by September based on borders from 1967 and in recent months has won recognition from a number of South American countries.

The United States and Israel oppose the unilateral efforts, insisting that all issues in the conflict must be dealt with through direct negotiations.

Following the vote, Israel joined the United States in once again calling for direct negotiations.

"Only thus, and not through seizing the Security Council, will it be possible to advance the peace process so as to benefit both parties and to serve the cause of peace and security throughout the region," said a statement released by Israel's Ministry of Foreign Affairs.

The American Israel Public Affairs Committee also praised the veto, saying the action prevented "another one-sided, anti-Israeli resolution from being enacted by the U.N. Security Council."

CNN's Kevin Flower and Elise Labott contributed to this report.