Britain voices strong concerns over Israel's decision to build thousands of new settlement homes in the occupied West Bank, but has no plans to withdaw its ambassador in Tel Aviv.

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The Israeli ambassador to London, Daniel Taub, was summoned to meet Foreign Office Minister Alistair Burt this morning, in protest over plans to expand settlement building.

The Foreign Office said Israel's decision to build 3,000 new homes posed a serious risk to the viability of a two-state solution in the region. "We have told the Israeli government that if they go ahead with their decision, then there will be a strong reaction", said a spokesman.

However Downing Street dismissed speculation that the UK was considering withdrawing its ambassador to Israel. "We think that what is being proposed could have a negative impact on the chances of talks and that is concerning to us, but we are not setting out any further action at this stage."

This latest diplomatic protests followed a series of strong statements over the weekend over Israel's move, which was approved after the United Nations voted last week to upgrade the status of Palestine, officially recognising it as a state.

Israeli Prime Minister, Binyamin Netanyahu, condemned the UN vote as a "gross violation" of previous agreements with Israel. and insisted: "We will carry on building in Jerusalem and in all the places that are on the map of Israel's strategic interests."

At issue is the settlement of Ma'ale Adumim, which lies just three miles from the eastern edge of Jerusalem. Under what is called the E1 plan, thousands of new homes would be built on a corridor of land connecting the settlement to the city, effectively isolating East Jerusalem from the rest of the West Bank, and dividing the occupied territory between north and south.

The E1, known as plan 420/4. was drawn up in 1999, covering just over four and a half square miles of largely uninhabited land. Since settlements are designated as closed military zones, Palestinians are not allowed in without special permission.

Expanding the settlement area would effectvely deny access to Palestinians and block off the main route into East Jerusalem. Critics say that would destroy Palestinian hopes of creating a viable state of their own.

The expansion of Jewish settlements is considered illegal under international law, but Israel resumed construction in 2010, a move which ended peace talks with the Palestinians.

UN chief Ban Ki Moon described this latest decision as "an almost fatal blow to remaining chances of securing a two-state solution", a statement echoed by the White House, which said it would be even harder to resume direct talks between the two sides.

Left wing MPs in Israel have condemned the government, warning that the world was losing patience, and Israel could end up completely isolated. Former opposition leader Tipi Livni led the dissent: "In one month of dangerous military and diplomatic moves, Netanyahu formed a Hamas state in Gaza, a Palestinian state in the UN, and now, with his response, made Israel guilty in the eyes of the world."

Britain is still considering what action to take, and sources claimed the Foreign Office was keeping "all options on the table".