A UN human rights rapporteur has said continued settlement construction will probably make Israel's occupation of Palestinian land irreversible.
Richard Falk said the peace process aimed at creating an independent, sovereign Palestinian state therefore appeared to be based on an illusion.
He said the UN, the US and Israel had failed to uphold Palestinians' rights.
Israeli officials said Mr Falk's report on the Palestinian territories was biased and served a political agenda.
Nearly half a million Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. They are held to be illegal under international law, although Israel disputes this.
In a report for the UN General Assembly, Mr Falk said Jewish settlement construction in the West Bank and East Jerusalem had become so extensive it amounted to de-facto annexation of Palestinian land.
He said this undercut assumptions behind UN Security Council resolutions which said Israel's occupation of Palestinian territory in 1967 was temporary and reversible.
Such assumptions are the basis for the current peace process aimed at creating an independent Palestinian state alongside Israel.
This now appears to be an illusion, said Mr Falk.
Israel said the report was utterly biased and served a political agenda, criticising its author for making no mention of what it called Palestinian terrorist attacks.
Mr Falk told journalists that his mandate was to report on the Israeli occupation, not on the rights and wrongs of the Israeli-Palestinian conflict.
He said he based his conclusion not only on the deepening expansion of Israeli settlements in the West Bank, but on the eviction of Palestinians from East Jerusalem, and the demolition of their homes.
Peace talks sponsored by the United States have stalled since Israel ended a partial 10-month freeze on settlement construction in the West Bank. Washington wants the negotiations to resume.
But Mr Falk said both governments and the United Nations had failed to uphold Palestinian rights.
He urged the UN to support civil society initiatives, such as campaigns to sanction or boycott Israel for alleged violations of international law.