The UN Security Council has rejected a resolution demanding an end to the Israeli occupation of the Palestinian territories within three years.
Jordan submitted the motion after it had been agreed upon by 22 Arab states and the Palestinian Authority.
Eight members of the 15-strong Security Council voted for it while the US and Australia voted against.
The resolution, condemned by Israel as a "gimmick", needed the support of at least nine members in order to pass.
Even if it had secured the required nine votes, the US would have used its veto power to stop the adoption of the resolution.
US envoy Samantha Power said after the vote: "We voted against this resolution not because we are comfortable with the status quo. We voted against it because... peace must come from hard compromises that occur at the negotiating table."
Jordan's UN ambassador, Dina Kawar, said the vote should not stop efforts to resolve the conflict.
Of the 15 members of the Security Council
- Russia, China, France, Argentina, Chad, Chile, Jordan and Luxembourg voted in favour
- The US and Australia voted against
- The UK, Lithuania, Nigeria, the Republic of Korea and Rwanda abstained
The document called for Israel to fully withdraw from all occupied Palestinian territories by the end of 2017 and for a comprehensive peace deal to be reached within a year.
It also called for new negotiations to take place based on territorial lines that existed before Israel's occupation of the West Bank, East Jerusalem and the Gaza Strip in the 1967 war.
The vote was the culmination of three months of campaigning by the Palestinians at the UN.
In a closed-door meeting of Arab states earlier on Tuesday, all 22 envoys endorsed the call for a same-day vote on the draft.
The failure of the Palestinian UN resolution dominates the Middle East Arabic press, with the US widely condemned for blocking the measure.
"Security Council: US pressure hampers bid to end occupation" reads a headline in the Palestinian pro-Fatah newspaper Al-Ayyam.
"Bid to end occupation collides with US hurdle," says Lebanon's pan-Arab leftist daily Al-Safir.
The Hamas-run Filastin newspaper criticises Fatah's handling of the resolution: "Fatah did not consult anyone.''
Iran's Arabic daily Al-Vefagh highlights comments by the Iranian Foreign Minister Mohammad Javad Zarif to the effect that ''resistance is the only way to realise the Palestinian people's rights''.
The vote is headline news in Israel, with papers carrying criticism of ''Palestinian unilateralism''.
''The morning after the UN Security Council rejected the Palestinians' bid at statehood, Israeli politicians took Palestinian attempts at unilateralism to task,'' Haaretz reports.
Eli Avidar, commenting in Haaretz, urges the Israeli government not to be afraid of international institutions and says ''it must deal with the claims of the international community as an active player''.