Israeli Foreign Minister Avigdor Lieberman has set out a number of Mid-East peace proposals at the UN but PM Benjamin Netanyahu said the speech had not been cleared.
Mr Lieberman said a permanent Mid-East settlement could take decades and pressed a plan for transferring Israeli Arabs to any Palestinian state.
He said Iran controlled militant groups such as Hamas and could foil any deal.
Mr Netanyahu said the speech did not reflect Israel's official position.
"The content of the foreign minister's speech at the United Nations was not co-ordinated with the prime minister," his office said in a statement.
"The various issues of the peace deal will be discussed and determined only at the negotiating table and nowhere else."
Mr Lieberman's comments come amid uncertainty about the US-brokered negotiations, which only resumed last month, after a partial freeze on the construction of Jewish settlements in the occupied West Bank expired.
In his speech, the leader of the right-wing nationalist Yisrael Beiteinu party said the Israeli-Palestinian conflict hinged not just on practical issues but on "emotional problems", such as the "utter lack of confidence".
"That is why the solution should also be a two-staged one," he said. "We should focus on coming up with a long-term intermediate agreement, something that could take a few decades."
"We need to raise an entire new generation that will have mutual trust and will not be influenced by incitement and extremist messages."
He also said the guiding principle for a final agreement should not be "land for peace, but rather exchange of populated territory".
"We are not talking about population transfer but about defining borders so as best to reflect the demographic reality," he added.
Mr Lieberman said the "other misguided argument is the claim that the Palestinian issue prevents a determined international front against Iran".
"In truth, the connection between Iran and the Israeli-Palestinian conflict is precisely reversed. Iran can exist without Hamas, Islamic Jihad and Hezbollah, but the terrorist organizations cannot exist without Iran."
"Relying on these proxies Iran can, at any given time, foil any agreement between Israel and the Palestinians, or with Lebanon."
The speech caused a walkout by Palestinian delegates at the UN.
"The remarks were so offensive that one cannot tolerate them," Permanent Observer Riyad Mansour told the Reuters news agency. "This man is completely detached from political reality."
The BBC's Barbara Plett, at the United Nations, says that as foreign minister, Mr Lieberman could have been expected to speak for Israel's government while addressing the General Assembly.
His decision to strike out on his own therefore exposes the serious disagreements within Mr Netanyahu's coalition on the current peace talks, and illustrates the hardline pressures he faces, our correspondent says.
On Monday the US said it was "disappointed" by Israel's decision not to extend the 10-month freeze on settlement building in the West Bank, which expired on Sunday.
Construction resumed in several settlements, but was reportedly slow because of the Jewish holiday of Sukkot.
Despite the end of the freeze, Mr Netanyahu called on the Palestinians to continue direct peace talks - which recently resumed after a 20-month pause.
Palestinian Authority President Mahmoud Abbas said he would make a decision about continuing with the talks after a meeting of Arab leaders in Cairo next Monday.
Hamas, which controls the Gaza Strip and is not taking part in the talks with Israel, has urged Mr Abbas to withdraw from them.
US President Barack Obama's Middle East envoy, George Mitchell, has been sent to the region to try to salvage the negotiations.
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.