The Palestinian Permanent Observer to the United Nations, called 'unfortunate' the U.S. veto of an Arab-sponsored United Nations Security Council resolution condemning Israeli settlement building in the West Bank and East Jerusalem on Friday.

"The Security Council failed to respond to the Israeli-Palestinian crisis and send a clear and firm message to Israel that it must ... cease all of its violations and its obstruction of the peace process," said Riyad Mansour, the Palestinian representative.

"We fear ... that the message sent today may be one that only encourages further Israeli intransigence and impunity," Mansour said.

The United States on Friday voted against a United Nations Security Council draft resolution that would have condemned Israeli settlements as illegal. The veto by the U.S., a permanent council member, prevented the resolution from being adopted.

The other 14 Security Council members voted in favor of the draft resolution. But the U.S., as one of five permanent council members with the power to block any action by the Security Council, struck it down.

The resolution had nearly 120 co-sponsors. The Obama administration's veto is certain to anger Arab countries and Palestinian supporters around the world.

The U.S. opposes new Israeli settlements but says taking the issue to the UN will only complicate efforts to resume stalled negotiations between Israel and the Palestinians on a two-state solution.

Prime Minister Netanyahu said that Israel was deeply grateful to the United States for vetoing the resolution. "Israel deeply appreciates the decision by (U.S.) President (Barack) Obama to veto the Security Council Resolution," Prime Minister Benjamin Netanyahu's office said in a statement.

Israel was "prepared to pursue negotiations vigorously" and was "eager to get on" with Israeli-Palestinian peace talks, the premier's office said. The "decision by the US makes it clear that the only path to such a peace will come through direct negotiations and not through the decisions of international bodies," it continued.

Palestinians say continued settlement building flouts the internationally-backed peace plan that will permit them to create a viable, contiguous state on the land after a treaty with Israel to end its control of the West Bank and decades of conflict.

Israel says this is an excuse for avoiding peace talks and a precondition never demanded before during 17 years of negotiation, which has so far produced no agreement.

Peace negotiations were halted in September after a temporary Israeli settlement freeze expired. Palestinians refuse to return to the negotiating table unless settlement building halts completely, including in East Jerusalem.

The Islamic Palestinian Hamas group also slammed the U.S. veto describing it as immoral behavior and a disregard of the international community.

Hamas said in a statement that the veto shows the American administration's bias towards the occupation.

Hamas urged the Palestinian Authority to stop all forms of security coordination with Israel.

Egypt also slammed the decision saying it was "disappointing."

A spokesman for the Egyptian Foreign Ministry, Hossam Zaki, predicted that the veto will instead push all sides away from the talks and further damage the credibility of the US as a mediator.

Its stance was "not only disappointing to the Palestinian and Arab people, but also on an international level, especially in all of the states that supported the draft resolution," Zaki said.