Israel risks losing Arab support against Iran if it does not make progress on the Palestinian issue, says US Secretary of State Hillary Clinton.
Mrs Clinton told legislators in Washington that the two issues "go hand-in-hand".
Israel considers a nuclear-armed Iran as its main threat.
Unlike his predecessor, Israeli Prime Minister Benjamin Netanyahu has not voiced support for a Palestinian state alongside Israel, a key Arab demand.
"For Israel to get the kind of strong support it's looking for vis-a-vis Iran, it can't stay on the sidelines with respect to the Palestinians and peace efforts," Mrs Clinton told the House of Representatives Appropriations Committee.
"They go hand-in-hand".
Arab nations want "very much to support the strongest possible posture towards Iran," she continued.
"They believe that Israel's willingness to re-enter into discussions with the Palestinian Authority strengthens them in being able to deal with Iran."
Washington visit
The Obama administration has made clear its determination to push for a two-state solution, with Israelis and Palestinians living side-by-side.
But the right-leaning Israeli government under Mr Netanyahu, who took office on 1 April, has so far refused to endorse a two-state solution like his predecessor Ehud Olmert.
Mr Netanyahu told US envoy George Mitchell on his visit to Israel that he would discuss a Palestinian state only if Palestinians recognise Israel as a Jewish state.
Hamas, winner of Palestinian elections in 2006 and de facto ruler of Gaza, refuses to recognise Israel's legitimacy or give up its armed struggle while Israel occupies Palestinian territory.
Mrs Clinton told the committee that Prime Minister Netanyahu is due to visit Washington in May.
"We think it is important not to prejudge what their view is and how that can best be approached," she said.
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