US Secretary of State John Kerry insisted on Wednesday that Israel and a future Palestine should live as two states based on the territory they held before the 1967 Six Day War.

Kerry, in a major speech on the frozen Middle East peace process, said “equivalent swaps” of land could happen to modify the border, but only by mutual consent.

Jerusalem, he argued, should be recognised as the capital of both states and those countries that do not recognise Israel as a Jewish state should do so.

“It is up to Israelis and Palestinians to make the difficult choices for peace but we can all help,” he said, laying out the United States recommendations for reviving the peace effort.

In a speech just weeks before the Obama administration hands over power to President-elect Donald Trump, Kerry said Israel “will never have true peace” with the Arab world if it does not reach an accord based on Israelis and Palestinians living in their own states.

“Despite our best efforts over the years, the two-state solution is now in serious jeopardy,” Kerry said at the State Department. “We cannot, in good conscience, do nothing, and say nothing, when we see the hope of peace slipping away.”

Kerry speech 'skewed against Israel': Netanyahu

Israel's Prime Minister Benjamin Netanyahu called a major speech by John Kerry on the Israeli-Palestinian conflict on Wednesday “skewed against Israel”.

“Like the Security Council resolution that Secretary Kerry advanced in the UN, his speech tonight was skewed against Israel,” a statement from Netanyahu's office said.

“For over an hour, Kerry obsessively dealt with settlements and barely touched upon the root of the conflict — Palestinian opposition to a Jewish state in any boundaries.”