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German Chancellor Angela Merkel on Monday said new sanctions are needed against Iran to pressure the country into settling the dispute over its nuclear program.

Speaking to reporters after talks with Lebanese Prime Minister Saad Hariri, Merkel said Iran had rejected all constructive offers put forward by the group of six nations negotiating with Tehran.

"We are about to enter the stage where sanctions should be taken against Iran," she said.

The U.S., Britain, France and Germany have been pushing a fourth round of sanctions against Iran, while China and Russia have been calling for diplomatic negotiations.

Iran insists its nuclear program is for peaceful purposes, while the U.S. and its allies maintain it aims to develop nuclear weapons.

Merkel also criticized Israel for plans to build new homes in East Jerusalem.

"We have suffered a serious blow to the question of proximity talks between the Palestinians and Israel," Merkel said of last week's decision to approve the building of 1,600 new homes in the Ramat Shlomo neighborhood in East Jerusalem.

The chancellor said she had told Prime Minister Benjamin Netanyahu in a phone call that the decision could disrupt the entire Middle East peace process.

"I hope the signals from Israel are constructive in future and don't continue to be so negative that they prevent such discussions from taking place," Merkel said, voicing unusually harsh criticism.

Hariri also expressed his concern at the developments.

"I stand here today with a concerned heart. I see very little movement in the peace process," Hariri said, adding that he saw "extremists strengthening their audience, every day that we fail to achieve progress."

The best way to help Lebanon, Hariri said, was by making "credible progress on the Palestinian track."

"We have been - and continue to be - among the first victims of the failure to resolve the Arab-Israeli conflict," the Lebanese premier said.

"The credibility of the international community is compromised today," Hariri warned, adding that everybody stood to lose if the issue was not resolved.

"We need to breathe life into a process that so desperately needs resuscitation," he added.

Germany has been active in Middle East peace moves this year, with Merkel holding talks with Netanyahu, Palestinian President Mahmoud Abbas and Egyptian President Hosni Mubarak.