The chief Israeli architect of the Oslo accords has urged the Palestinian leadership to declare the death of the peace process he helped instigate as Britain issued one of its strongest ever condemnations of Israeli settlement policies.

Yossi Beilin urged Mahmoud Abbas, the Palestinian leader, to carry out his threat to dissolve the Palestinian Authority – created by the Oslo deal in 1993 – and hand back full control of the West Bank and Gaza to Israel.

Mr Beilin´s dramatic intervention reflects growing international concern that Israeli settlement construction is undermining the viability of a "two-state solution", the Oslo formula meant to end the Middle East conflict by establishing a Palestinian State alongside an Israeli one.

While Mr Beilin was careful to blame "extremists" on both sides for "gutting" the agreements, there has been mounting international outrage after Benjamin Netanyahu, the Israeli prime minister, took steps this week further to entrench Jewish settlements in the West Bank and East Jerusalem.

His administration published tenders for more than 800 settler homes and in a major policy shift, he also announced plans to seek the retroactive legalisation of four wildcat settler enclaves known as outposts in the West Bank that were built without planning permission from the Israeli authorities.

Although all settlements are considered illegal under international law, outposts are also prohibited under Israeli law and courts in the Jewish state have ordered that a number be demolished – a step Mr Netanyahu´s pro-settler ruling coalition has sought to resist.

The issue of outposts is particularly incendiary as many are built on privately owned Palestinian land, and Israel has made repeated pledges in the past to dismantle dozens of them.

Britain responded angrily to the move, accusing Israel of being in breach of commitments it made under the Bush era Road Map to freeze all settlement construction on land it captured during the Six Day War of 1967.

"Systematic, illegal Israeli settlement activity poses the most significant and live threat to the viability of the two state solution," William Hague, the Foreign Secretary, said. "The Israeli government´s policy is illegal under international law, counterproductive, destabilising and provocative."

With more than 500,000 Israelis now living beyond the pre-1967 armistice lines, Palestinians say it will soon be impossible to build a state of their own because the settlement footprint extends across so much of the West Bank and East Jerusalem, which they claim as their capital.

Mr Abbas, who has refused to negotiate with Israel unless it carries out earlier pledges to freeze settlement construction, had included a threat to dismantle the Palestinian Authority in a letter to Mr Netanyahu to be delivered next week.

But he withdrew the clause under pressure from President Barack Obama. The authority was only ever meant to be an interim measure on the way to full Palestinian statehood, and many in the West Bank believe that it now serves Israel´s interests far more than its own.

If it were dismantled, Israel would be forced to send its troops back into Palestinian cities and bear the full cost of its occupation, much of which is now shouldered by Britain and its European partners.

"Do not accept the request of President Obama, who merely wants to be left undisturbed before election day," Mr Beilin wrote in an open letter to Mr Abbas.

"Do not let Prime Minister Netanyahu hide behind the fig leaf of the Palestinian Authority – impose upon him, once again, the responsibility for the fate of 4 million Palestinians.

"For the sake of your own people, and for the sake of peace, you cannot let this farce continue." Sealed by a famous handshake in 1993 between Yasser Arafat and Yitzhak Rabin on the White House lawn as a beaming Bill Clinton looked on, the Oslo accords were the result of months of secret negotiations between Mr Beilin – then deputy foreign minister – and PLO representative Ahmed Qurei.

But while the agreement represented the high point of the peace process, Mr Beilin said it had been so twisted it had now become detrimental to hopes for peace.

"Oslo´s adversaries have turned the interim agreement, which was supposed to last not more than six years and serve only as a pathway to a finale solution, into an arena where they can continue to build settlements or spin their dream of an Islamic empire," he wrote.

"The extremists´ gutting of the Oslo agreement has been complete. One simply cannot continue with an interim agreement for more than 20 years."

Last night Israel responded to the comments by Mr Hague, saying it would be better if he put pressure instead on the Palestinians to drop its demand for a settlement freeze and resume negotiations unconditionally.

"The only possible framework for a realistic solution to the settlement issue has been, and still is, direct negotiations between Israel and the Palestinians," said Yigal Palmor, a spokesman for the Israeli foreign ministry.

"As long as the Palestinians continue to shun direct talks by all kinds of pretexts and excuses life goes on and the issues remain unresolved." (© Copyright of Telegraph Media Group Limited 2012. 04/06/12)