US Secretary of State John Kerry said Saturday he was hopeful that the Israelis and Palestinians would be able to reach a peace agreement in the US-brokered talks, saying Washington’s drive for Middle East peace was not “quixotic.”

Speaking at the Munich Security Conference, Kerry said he believes in the chances of reaching an accord between Jerusalem and Ramallah, and reiterated his warning of the potential fallout should talks fail. He warned that the current relative security Israel enjoy could prove to be an illusion that would change entirely should negotiations not yield an agreement with the Palestinian Authority.

Kerry said he was utterly certain that the current status quo was “not sustainable… It’s illusionary. There’s a momentary prosperity. There’s a momentary peace.” But that would end if the talks failed, he said, noting that already Israel was facing increased delegitimization and boycott threats. (A series of banks and pension funds in Norway, Denmark, Sweden and Holland have announced a cessation of dealings with Israeli banks and companies in recent days because of those firms’ West Bank activities.)

Saying that the stakes were “enormously high” for Israel, Kerry said failure would damage its capacity to be “a democratic state with the particular special Jewish character that is a central part of the narrative and of the future” by creating a “bi-national structure” in which people “demand rights on different terms.”

Failure, he said, would not only cause a backlash from the “disappointed Palestinians and the Arab community,” but also exacerbate the boycott threats Israel faces.

“The risks are very high for Israel. People are talking about boycott. That will intensify in the case of failure,” he said. “We all have a strong interest in this conflict resolution.”

“I am hopeful and we will keep working on it,” Kerry said. ”I believe in the possibility or I wouldn’t pursue this. I don’t think we’re being quixotic … We’re working hard because the consequences of failure are unacceptable.”

The secretary of state said both sides were working hard to reach a deal, and those efforts would continue in the coming days.

“With the help of the EU and Quartet, we are pursuing long-sought and much-needed peace between Israelis and Palestinians,” he said. Kerry and representatives of the Middle East Quartet — Russia, the European Union and United Nations — met on the sidelines of the Munich conference. EU foreign policy chief Catherine Ashton headed the meeting with Kerry, UN Secretary General Ban Ki-moon and Russian Foreign Minister Sergey Lavrov.

He noted that the status quo couldn’t continue because it threatens the Jewish and democratic nature of Israel and increases the likelihood of Israel’s international isolation.