The UN Security Council expressed its "dismay" with plans by Israel's hard-right government to retroactively legalize settlements in occupied Palestinian lands, warning in a statement Monday that such measures "impede peace."

"The Security Council reiterates that continuing Israeli settlement activities are dangerously imperiling the viability of the two-State solution," the Council said in a statement supported by all 15 members but which does not have the binding force of a resolution considered last week.

Israel was quick to hit back at the declaration, with the office of Prime Minister Benjamin Netanyahu saying it denied the "historic" rights of the Jewish people.

"The UN Security Council has issued a one-sided statement which denies the rights of Jews to live in our historic homeland," Netanyahu's office said in a statement.

The UN statement "fails to mention the Palestinian terror attacks" in which Israelis were killed in recent weeks, it added, saying it "should never have been made and the United States should never have joined it".

The earlier draft resolution, proposed by the United Arab Emirates, had called on Israel to "immediately and completely cease" settlement activities in occupied Palestinian areas.

Diplomatic sources told AFP Monday that the draft, condemning "all attempts at annexation, including decisions and measures by Israel regarding settlements, including settlement outposts" had been dropped and would be replaced by the new statement issued by the president of the Security Council.

The draft resolution had also reiterated the demand "that Israel immediately and completely cease all settlement activities in the occupied Palestinian territory, including East Jerusalem."

The initiative provoked opposition from the United States, which has the right of veto in the Council.

The White House said it was "deeply dismayed" by the plans.

Washington had at the same time denounced the announcement a few days earlier by the Israeli security cabinet of the legalization of nine settlements in the occupied West Bank.

The new statement on Monday said the Council "strongly opposes all unilateral measures that impede peace, including, inter alia, Israeli construction and expansion of settlements, confiscation of Palestinians' land, and the 'legalization' of settlement outposts, demolition of Palestinians' homes and displacement of Palestinian civilians."

Asked if the new declaration was a disappointment, the Palestinian envoy to the UN, Riyad Mansour, stressed the fact that is was a unanimous stance by the Security Council.

"We have a united front," he said. "To isolate one side is a step in the right direction. We are fast approaching a breaking point that no one should care to explore."

He said the message needed to be "translated into a time-bound action plan at concerted effort by the UN and its member states to set us on a different path. One that leads to freedom, justice and peace."