The US says it is "disappointed" by Israel's decision not to extend a ban on West Bank settlement building.
US Middle East envoy George Mitchell has been sent to the region in an attempt to salvage direct peace talks that were restarted earlier this month.
The 10-month moratorium came to an end at midnight (2200 GMT on Sunday).
Palestinian Authority Mahmoud Abbas said he would respond to the decision after a meeting of Arab leaders in Cairo next Monday.
On Sunday, he had warned that the direct Israeli-Palestinian peace talks would be a "waste of time" unless the ban continued.
The UN and the EU also expressed disappointment at what UN chief Ban Ki-moon called Israel's "provocative" actions.
But Israeli Foreign Minister Avider Lieberman said the Palestinians had squandered the moratorium, which he described as a "unilateral gesture of goodwill".
"The Palestinians wasted time and completely refused to accept this gesture and accused Israel that it's a fraud, that it's not serious," he said.
Israel 'must do more'
With peace negotiations in the balance, Mr Abbas is in a difficult position and may be forced to compromise, says the BBC's Jon Donnison in the West Bank town of Ramallah.
Under US pressure, there are signs Palestinian negotiators may accept that the moratorium will not be extended, as long as no major construction takes place in the coming months, our correspondent adds.
On Monday, bulldozers started levelling ground for 50 homes in the settlement of Ariel in the northern West Bank, and similar activity was also reported in the settlements of Adam and Oranit. But construction work was reportedly slow because of the Jewish holiday of Sukkot.
The US state department praised what it called Mr Abbas's restraint, saying the US remained focused on the peace process's long-term objectives.
Mr Abbas said he would discuss the settlement issue with Palestinian negotiators in Ramallah on Wednesday, and the 22-member Arab League in the Egyptian capital Cairo next Monday.
"After all these meetings we may be able to issue a position to clarify what is the Palestinian and Arab opinion on this matter, after Israel has refused to freeze settlements," he said after talks with French President Nicolas Sarkozy in Paris.
Mr Sarkozy said he deplored Israel's failure to extend the freeze, saying he would tell Israeli Premier Benjamin Netanyahu that he had to do more.
As the moratorium expired, Mr Netanyahu called on the Palestinians to continue peace talks, which recently resumed after a 20-month pause.
He did not mention the settlement issue directly, but said it was possible "to achieve a historic framework accord within a year".
He had earlier urged settlers "to display restraint and responsibility".
Some Jewish settlers celebrated the end of the construction ban. At the settlement of Revava, near the Palestinian town of Deir Itsia, they released balloons and broke ground for a new nursery school before the moratorium expired.
The exiled head of Hamas - the Palestinian Islamist group that controls the Gaza Strip - called on Mr Abbas to quit the peace talks.
"I call on my brothers at the Palestinian Authority, who had stated they would not pursue talks with the enemy if it continued settlement construction, to hold to their promise," said Khaled Meshaal from his headquarters in Syria.
"To negotiate without a position of strength is absurd."
Hamas seized control of Gaza in December 2007, ousting Fatah forces loyal to Mr Abbas.
The rival groups held reconciliation talks in Damascus on Friday and said they wanted them to continue.
It is estimated that about 2,000 Jewish settlers' housing units in the West Bank already have approval and settler leaders said they planned to resume construction as soon as possible.
The partial moratorium on new construction was agreed by Israel in November 2009 under pressure from Washington.
It banned construction in the West Bank, but never extended the ban to settlements in East Jerusalem.
Israel has occupied the West Bank since the Middle East war of 1967, settling some 500,000 Jews in more than 100 settlements which are held to be illegal under international law, although Israel disputes this. About 2.5 million Palestinians live in the West Bank.