Israeli Prime Minister Benjamin Netanyahu faced growing criticism Saturday after he called the Palestinian refusal to let Jews live in their future state "ethnic cleansing".
In a video released Friday, Netanyahu rejected the notion that West Bank settlements were "an obstacle to peace", drawing a rebuke from Washington.
Netanyahu noted "Israel's diversity" which manifests in "the nearly two million Arabs living" in the Jewish state and reflects its "openness and readiness for peace".
"Yet the Palestinian leadership actually demands a Palestinian state with one pre-condition: No Jews," he said.
"There's a phrase for that: It's called ethnic cleansing."
The US State Department called the video "unhelpful" and "inappropriate".
"We obviously strongly disagree with the characterisation that those who oppose settlement activity or view it as an obstacle to peace are somehow calling for ethnic cleansing of Jews from the West Bank," spokeswoman Elizabeth Trudeau said Friday.
"We believe that using that type of terminology is inappropriate and unhelpful," she said.
"Settlements are a final status issue that must be resolved in negotiations between the parties."
Israeli opposition member Tzipi Livni of the Zionist Union party accused Netanyahu of "trying to make political gains while creating diplomatic damage".
She said the video had caused the US position to change from accepting settlement blocs to rejecting the entire West Bank enterprise.
"After Netanyahu's video, the US is saying that all the settlements, including the blocs, are an obstacle, whereas in the past they were recognised," she said in remarks relayed by a spokesman.
Ayman Odeh, who heads the Joint List that groups the main Arab parties in parliament, accused Netanyahu of creating "an imaginary reality" and rejected the comparison between Israeli Arabs and Jewish West Bank settlers, who he said implement a policy of "ethnic cleansing".
"Netanyahu doesn't care that it is the settlements that were established precisely in order to cruelly expel Palestinian populaces from the West Bank to limited territories around the major cities," he wrote on Facebook.
Peace efforts have been at a standstill since a US-led initiative collapsed in April 2014, with both Netanyahu and Palestinian president Mahmud Abbas saying on Tuesday they were ready to meet to relaunch peace efforts.
Russian President Vladimir Putin has been seeking to arrange a meeting between the two in Moscow.
International criticism of Israeli settlement building, including from the United States, has intensified in recent months.
Netanyahu's government, considered to be the most right-wing in the country's history, has nonetheless continued with the policy.
The settlements are considered illegal under international law and major obstacles to peace as they are built on land the Palestinians see as part of their future state.