European Union foreign policy chief Catherine Ashton said she regrets that Israel has not been in a position to accept an extension of the moratorium as requested by the US, the EU and the Quartet.
In a statement issued on Wednesday, Ashton said the EU position on settlements "is clear". "They are illegal under international law and an obstacle to peace," she added.
"Recent settlement related developments, including in East Jerusalem, contradict the efforts by the international community for successful negotiations."
"We must spare no effort to get negotiations back on track on all final status issues. There is no alternative to a negotiated two-state solution to the Israeli-Palestinian conflict," Ashton added.
"I am in close contact with the US, in coordination within the Quartet, and working with the parties and partners in the region to continue to work towards the objective of a negotiated peace," she said.
Ashton’s statement came a day after Washington admitted that its efforts to coax Israel into imposing new curbs on settlement construction in the West Bank had failed.
Palestinian chief negotiator Saeb Erakat is to meet US Secretary of State Hillary Clinton in Washington within "the next 48 hours" while Israeli Defence Minister Ehud Barak was also travelling to Washington for "meetings with senior US defence and administration officials.”
A US spokesman earlier said Washington was sticking to its goal of reaching a Middle East peace deal "within a year."
US State Department spokesman Philip Crowley said Washington still considered settlements in the West Bank to be illegal but would now seek means other than a settlement freeze to restart peace talks.
"We're shifting our approach, but are still focused on the goal of a framework agreement within a year. We believe that's still achievable,"Crowley told reporters witout saying what the new approach will be.
"Obviously a lot of hard work is going have to be done, it's not going to easy, but we haven't changed our objective" set in August of reaching a peace agreement within 12 months, he said.
Crowley threw cold water meanwhile on Palestinian appeals for the international community to go ahead and recognize a Palestinian state within the borders that existed before the 1967 Arab-Israeli war.
"We believe that bringing these issues to an international forum will be a distraction, and will just add complexity to an already difficult circumstance," he said.
In Athens, Palestinian Authority leader Mahmud Abbas on Wednesday said peace talks with Israel were in crisis after Washington's decision to drop its demand for a new freeze on settlement building in the West Bank.
"There is no doubt that there is a crisis," Abbas said in Arabic, translated into Greek, after his meeting with Greek Prime Minister George Papandreou.
Abbas said hoped the European Union would get involved in relaunching the negotiations. "We hope that the time will soon come when the EU will play a role alongside the United States."
Israel said it is still committed to reaching an accord.
“Israel remains determined in our commitment to continue the effort to achieve an historic peace agreement with the Palestinians, an agreement that brings a genuine reconciliation between the two peoples,” said Israeli government spokesman Mark Regev.