Germany's Merkel cautions ally Israel on settlements

Israeli Prime Minister Benjamin Netanyahu (L) gestures during a news conference with German Chancellor Angela Merkel after bilateral talks at the Chancellery in Berlin December 6, 2012.

BERLIN (Reuters) - German Chancellor Angela Merkel called upon ally Israel to work for a two-state solution with the Palestinians and avoid one-sided actions that endanger prospects for peace.

Germany has traditionally been one of Israel's strongest supporters but an Israeli plan to build 3,000 settler homes in one of the most sensitive areas of the West Bank has caused a storm of international protest and open criticism from Berlin.

"We agreed that we disagree on this," Merkel said at a news conference with Israeli Prime Minister Benjamin Netanyahu in Berlin on Thursday.

"We in Germany believe the work on a two-state solution must be continued... We must keep trying to come to negotiations and one-sided moves should be avoided," she added, while reiterating her commitment to the security of Israel.

The new settlement plan came after the U.N. General Assembly voted to effectively recognize Palestinian statehood last week.

Palestinians say the new settlements on land they seek for their state could bisect the West Bank and cut them off from Jerusalem, their would-be capital.

Netanyahu told a German newspaper he was disappointed that Germany had abstained in the U.N. vote. But on Thursday he said he had no doubt that Berlin was committed to Israel's wellbeing.

He said he still believed he had support from Europe, even after the European Union and several of its member states summoned their Israeli envoys to protest at the settlement plan.

"I don't think we have lost Europe," Netanyahu said. "But there is obviously a difference of view in Europe on the issue of the settlements."

(Additional reporting by Madeline Chambers and Stephen Brown)