UNITED NATIONS, United States (AFP) - UN leader Ban Ki Moon warned on Friday of "increasingly dangerous" tensions between Israel and the Palestinians which could threaten peace talks.

Israeli and Palestinian negotiators are holding US-brokered peace contacts, but Mr Ban said, "I am alarmed by the increasingly dangerous situation on the ground. There has been an escalation of violence and incitement."

He highlighted Israel's settlement surge in the occupied territories as "a cause for very grave concern" in a message for the international day of solidarity with the Palestinian people.

"Announcements of thousands of new housing units cannot be reconciled with the goal of a two-state solution and risk the collapse of negotiations," he said, calling for an end to all new settlements in the West Bank and East Jerusalem.

Mr Ban also condemned rocket attacks from Gaza into Israel and the building of tunnels from the besieged Palestinian territory into Israel by militants.

He said the Palestinians must overcome "divisions" between President Mahmud Abbas' Fatah faction and Hamas, the Gaza rulers, to boost the talks.

"All parties must act in a responsible way and refrain from actions that undermine the prospects for successful negotiations," the UN secretary general said.

"We cannot afford to lose the current momentum of opportunity," Mr Ban said.

Mr Ban's message came out on the first anniversary of the UN General Assembly's recognition of the Palestinians as an observer state.

Mr Abbas agreed in July to a US request to renew peace talks for nine months and not to seek stronger recognition. But he faces mounting pressure to take new diplomatic initiatives to establish the Palestinian claim to statehood.