US Secretary of State John Kerry launched an unusually pointed public attack on Israeli policies in the West Bank Thursday, calling settlements “illegitimate” and warning that if current peace talks fail, Israel could face a third intifada and growing international isolation. Kerry made the comments during a joint interview with Israel’s Channel 2 and the Palestinian Broadcasting Corporation.

“The alternative to getting back to the talks is the potential of chaos,” Kerry said. “I mean, does Israel want a third intifada?” he asked.

“If we do not resolve the issues between Palestinians and Israelis, if we do not find a way to find peace, there will be an increasing isolation of Israel, there will be an increasing campaign of delegitimization of Israel that’s been taking place on an international basis,” he warned.

“We’ll remind Kerry of what he’s said himself,” responded a senior Israeli official quoted by Channel 2, “‘We will not succumb to fear tactics.” The Israeli official seemed to be angrily echoing Kerry’s own comments in connection with the Iranian nuclear program in late October, when he said that America “will not succumb to those fear tactics” — remarks interpreted by commentators as criticism of Israeli warnings about the dangers of talking to Tehran.

Turning to settlements and Israel’s presence in the West Bank, Kerry on Thursday denied rumors that there was an understanding that Israel would announce new settlement construction in exchange for releasing long-serving prisoners: ”That is not the agreement. The agreement, specifically, was that there would be a release of the pre-Oslo prisoners — 104 [of them] — who’ve been in prison now for many many years, who would be released in exchange for the PA not proceeding to the UN during that period of time.

“Now, the Palestinian leadership made it absolutely clear: they believe the settlements are illegal. They object to the settlements, and they are in no way condoning the settlements, but they knew that Israel would make some announcements. They knew it. But they don’t agree with it. And they don’t support it. They disagreed with it. In fact, they said, ‘We don’t agree. We do not think you should be doing settlements.’

“We, the United States, say the same thing,” Kerry continued. “We do not believe the settlements are legitimate. We think they’re illegitimate. And we believe that the entire peace process would in fact be easier if these settlements were not taking place. Now that’s our position… But we knew that there was not going to be a freeze. We didn’t negotiate a freeze.” Still, he said, Netanyahu had promised no settlement building that would change the “peace map” — presumably meaning no major expansion of settlements outside the major settlement blocs.

Kerry argued that recent Israeli settlement plans show a lack of seriousness about the peace process.

“Let me ask you something. How, if you say you’re working for peace and you want peace, and a Palestine that is a whole Palestine that belongs to the people who live there, how can you say we’re planning to build in a place that will eventually be Palestine? So it sends a message that perhaps you’re not really serious. If you announce planning, I believe it is disruptive to the process. But, the good side of it is, during the time we are negotiating, the planning will not translate into building and construction. And the prime minister has said he will not affect the peace map with the construction that takes place.”

“If we do not resolve the question of settlements,” he added, “and the question of who lives where and how and what rights they have; if we don’t end the presence of Israeli soldiers perpetually within the West Bank, then there will be an increasing feeling that if we cannot get peace with a leadership that is committed to non-violence, you may wind up with leadership that is committed to violence.”

The secretary of state pointed to the economic importance of the talks as well, arguing that it could change the regional economy.

“If we can find a peace that brings Jordan, Palestine, Israel, together in a peaceful bloc, if you will, that will have a profound impact on the day-to-day life of everyone in this region, and on the economic possibilities of this region… An Arab minister said this to me the other day, if peace comes to Israel and to Palestine, this will be a financial powerhouse, this will be the economic center of the region. So I think that peace really screams to us as something that is good for everybody, and it’s worth fighting for.”

In response to a question from Channel 2′s Udi Segal about the message Abbas sends to Israelis when he calls terrorists, released from pre-Oslo era prison convictions for murder as part of the parameters for the new peace talks, “heroes,” Kerry admitted, “It’s very difficult. Look, I have no illusions. I know that the vast majority of people in Israel are opposed [to these releases]. I understand that. Prime Minister Netanyahu understands that. And it is a sign of his seriousness that he was willing to make this decision.

“I know there’s cynicism. I know so many people don’t believe anything I just said… And I know there are people who have grown used to this,” Kerry said, referring to the current relatively peaceful stalemate in Israeli-Palestinian relations. And particularly in Israel. Israel says, ‘Oh we feel safe today. We have the wall, we’re not in a day-to-day conflict, we’re doing pretty well economically.’

“Well, I’ve got news for you,” he said, referring to the Israeli public. “Today’s status quo will not be tomorrow’s or next year’s. Because if we don’t resolve this issue, the Arab world, the Palestinians, neighbors, others, are going to begin again to push in a different way.”

Kerry also denied reports, pushed by Meretz head Zahava Galon, that the US would present a peace plan of its own in January if the negotiations are deadlocked.

“No, we have no plans right now to put [forward] an American plan,” Kerry said. “Right now, we are negotiating, we are part of the negotiation with the parties. They’re putting ideas on the table. Some days it moves faster, some days it moves slower, some days you get a little further on some subjects, some days you have an explosion over one issue or another.

“We know it’s hard, but what’s important is that both leaders are committed to work at trying to find the way forward.”

Kerry has been shuffling this week between Israel, the Palestinian territories and Jordan in a frantic bid to get the peace negotiations back on track amid rising public anger among Palestinians over Israeli settlement activity and among Israelis over the release of Palestinian prisoners.

When the conversation turned to Iran’s nuclear program, Kerry denied that America was offering a time-out for Iran. “We are asking them to step up and provide a complete freeze over where they are today.”

He also made the case that the Obama Administration has an obligation to exhaust every opportunity to find a diplomatic solution with Iran.

“Let me just ask you simply, are we better off not talking to them, and they continue to build the capacity, and then we have an automatic military confrontation, or are we better off having them freeze where they are today and take the program backwards so that you expand the amount of time before they could break out? Which way is safer? It’s very clear to me which way is safer. And it seems to me that we have an obligation to the world, before you use military force, you need to exhaust every possibility of diplomacy. That is an obligation. I have fought in a war. I know what happens when you go to war. War is the failure of diplomacy.

“Iran knows that if they don’t meet the standards of the international community, the sanctions could be increased,” he emphasized, “and even worse, if the clocked ticked down where you have a very dangerous situation, there may be no option but the military option. We hope to avoid that, but we are clearly moving to try to deal with these issues.

“I think you need optimism in a place that has a lot of pessimism. I think it’s good to have optimism. The schedule may slip a little here and there, but if you don’t have targets, if you don’t set ambitious targets, you don’t get anything done. We are on target right now with the chemical weapons in Syria. A month ago, nobody would have believed you even had Assad admitting he had weapons. Now, not only has he admitted that, but we’re moving them out and destroying the capacity.”

Kerry also pushed back against claims that the White House had hurried to Congress to prevent it from passing heavier sanctions on Iran.

“First of all, first of all, we have not rushed. Number two, we have not taken away any sanction yet, nor are we talking about undoing the sanctions regime. Iran needs to prove that its program is peaceful, and I have said many times, we will not make a deal that’s a bad deal, that leaves any of our friends, or ourselves, exposed to a nuclear weapons program, and we will not undo the major sanctions regime until we have absolute clarity about what is happening.”

Kerry will see Abbas again Thursday night in Amman and then return to Jerusalem on Friday for a third meeting with Netanyahu in two days before continuing to the United Arab Emirates, Algeria and Morocco.

The Times of Israel staff and AP contributed to this report.