The United Nation's Mideast envoy says the political leaders on both sides of the Israeli Palestinian conflict continue to shy away from the steps needed for peace, further eroding the prospect of a two-state solution.

Nicolay Mladenov told the Security Council on Monday that illegal settlement expansion and the lack of Palestinian Authority control in Gaza remain among the biggest obstacles to peace, nearly two months after international negotiators offered practical recommendations to enable a return to talks.

Mladenov called for a "radical overhaul of how we deal with the problems of Gaza," and said the area "remains in the grip of militants, and dependent on aid and humanitarian assistance."

He also flagged "a surge in Israeli settlement-related announcements and demolitions," and called on Israel to reverse these decisions.