Jordan's King Abdullah II warned Thursday that the situation in the Middle East could "explode" due to Israel's building of settlements in East Jerusalem.

"I am afraid the tension could develop into an explosion with all parties paying the price," the monarch said in a speech to the annual conference of Jordanian ambassadors.

His comments came ahead of a meeting this weekend of the Arab League in Cairo, which may herald the resumption of indirect talks between Israel and the Palestinians.

Abdullah accused Israel of "playing with fire" by carrying out unilateral actions in East Jerusalem which the Jewish state captured from Jordan in the 1967 war.

"Israel should choose between living in an isolated fortress in the region or reaching peace with all Arab and Islamic states in accordance with the Arab Peace Initiative," he said.

The Arab peace plan, which was launched at the Arab summit conference in Beirut in 2002, offers Israel recognition by all Arab states if it pulled out from all the Arab territories it occupied in the 1967 war, including East Jerusalem.

Two weeks ago, Abdullah told the Chicago Tribune that a war could break out in the Middle East this summer if no progress is made in restarting Palestinian-Israeli peace talks.

"If we hit the summer and there's no active [peace] process, there's a very good chance for conflict, and nobody wins when it comes to that," Abdullah said.