UK Foreign Secretary William Hague has warned that "the window is closing" on the possibility of a peace deal between Israel and the Palestinians.
He also expressed "frustration" over a row with Israel which had overshadowed his three-day visit to the region.
Israel's Foreign Ministry announced it was postponing "strategic" talks with the UK in protest at a British law that puts visiting Israeli officials at risk of arrest for alleged war crimes.
Mr Hague said the law was under review.
Since Israel's military offensive in Gaza in 2009, Israeli ministers have had to cancel visits to the UK over concerns they could face arrest on war crimes charges brought by pro-Palestinian campaigners.
Earlier this week, it was reported that Israel's Intelligence Minister, Dan Meridor, cancelled a trip to Britain amid concerns that he risked being arrested for alleged crimes relating to the raid on a Gaza-bound aid ship in May in which nine Turkish activists were killed.
On Wednesday, the first day of Mr Hague's official visit to Israel, Israel's Foreign Ministry announced that it was postponing annual strategic talks with Britain over defence and security issues.
A ministry spokesman denied that the move was a deliberate "ambush" to humiliate Mr Hague, but the row has overshadowed his visit to Israel and the Palestinian territories - his first since taking office in May.
Speaking at the end of his trip to the region, Mr Hague told the BBC that "certainly [the announcement] was a little frustrating".
But he added that he saw it as "a mistake on behalf of the foreign ministry, rather than something with bad intentions."
The foreign ministry is led by the often controversial right-wing minister Avigdor Lieberman, who has previously rebuked European politicians over their stance on the Middle East, says the BBC's Wyre Davies from Jerusalem.
Mr Hague said that he had clarified the matter with Israeli Prime Minister Benjamin Netanyahu, and that "the difficulties of yesterday [had] been overcome".
He said Britain was urgently addressing the issue of amending the laws which could expose visiting Israeli politicians to arrest - a move already announced by the Conservatives.
He also expressed concern that peace talks between Israel and the Palestinians had stalled over the issue of renewed building in Jewish settlements in the occupied West Bank.
Mr Hague said that both sides had obligations, but that it was largely up to Israel to break the impasse.
"We do want Israel to announce a new moratorium on settlements... That is what the whole of Europe wants, that is what the United States wants," he said.
"We do urge all concerned to do what is necessary to allow a two-state solution to come about. I am very worried that the window is closing on that possibility, there is a real urgency to this," he added.
The Palestinians - backed by the Arab League - have pledged not to return to direct talks without a full settlement construction freeze, but have given US negotiators until early November to try to break the impasse.
Israel has refused to renew the freeze despite international pressure.
The talks, which resumed in Washington in September after a break of almost 20 months, are now facing imminent collapse.
Israel has occupied the West Bank, including East Jerusalem, since 1967, settling close to 500,000 Jews in more than 100 settlements. They are considered illegal under international law, although Israel disputes this.