RAMALLAH, Palestinian Territories (AFP) – The Palestinians aim to launch a new bid to clinch UN condemnation of Israeli settlement building, after Washington vetoed a Security Council motion, a senior official said on Saturday.

Yasser Abed Rabbo, the Palestine Liberation Organisation's secretary general, said Palestinian leaders had decided to make an attempt at the world body's General Assembly, which convenes in New York in September.

"Our decision now is to go to the General Assembly of the United Nations to pass a UN resolution against the settlements and condemn them and to emphasise its lack of legitimacy," he told AFP.

"And then we will put forward a draft to condemn the settlements to the UN Security Council."

A widely supported Palestinian drive to win the Council's condemnation of Israeli settlement was foiled by a US veto on Friday after Palestinian leader Mahmud Abbas ignored sweeteners and reported strong-arm tactics from the White House to have the motion withdrawn.

Egypt said the US veto, while the Council's 14 others members all voted in favour, damaged Washington's credibility as a peacebroker.

"The veto, which contradicts the American public stance rejecting settlement policy, will lead to more damage of the United States's credibility on the Arab side as a mediator in peace efforts," the foreign ministry in Cairo said.

The Islamist movement Hamas which rules the Gaza Strip said the US use of its veto was "outrageous" and urged an end to all Palestinian-Israeli contacts.

Hamas spokesman Fawzi Barhoum said the move should serve as a wake-up call for Abbas, the Islamist movement's fierce rival, and his West Bank-based Palestinian Authority (PA).

"This is an arbitrary and outrageous decision against the Palestinian people," he told AFP. "It should push the PA to adopt a strategy of unity... and take a national decision to end all forms of negotiations with" Israel.

Barhoum said Washington had again shown itself to be "completely biased" towards Israel and confirmed the failure of the US-brokered peace process.

Saeb Erakat, a senior member of Abbas's mainstream Fatah movement who last week quit as chief Palestinian negotiator, said the latest setback undermined the Palestinian government.

"Israel has stripped the Palestinian Authority of its meaning, and (its usefulness) as a tool for the independence of the Palestinian people should be reconsidered," he told AFP.

Ahead of Friday's vote, the United States had pressured the Palestinians to drop their backing for the resolution, but to no avail, with Abbas rejecting a personal appeal from US President Barack Obama.

"We have to maintain our credibility in the eyes of our people and avoid a repetition of previous incidents," Palestinian foreign minister Riyad al-Malki said on Thursday.

Abbas came under harsh criticism in September 2009 when he bowed to US pressure to accept a UN Human Rights Council ruling that both Israel and Hamas had failed to properly probe the findings of the Goldstone Commission.

The UN-sponsored commission found that both parties had committed war crimes during Israel's December 2008-January 2009 assault on Gaza.

Direct peace talks between Israel and the Palestinians broke down last September after the expiry of a temporary freeze on Jewish settlement activity in the West Bank.

US attempts to coax Israel into renewing the freeze ran aground in December, with the Palestinians refusing to return to the negotiating table while Jewish settlers build on land they want for a future state.

Jewish settlement activity on Palestinian land seized during the 1967 Six-Day War is considered illegal by the international community, including the United States.