Yuval Diskin, the former head of the Shin Bet security and intelligence service, has called for a freeze on “all construction in the settlements”.

Speaking at an event held to mark the 10th anniversary of the Geneva Initiative – an unofficial Middle-East peace plan, Diskin told the audience that “the implications of a lack of a solution to the Israeli-Palestinian conflict are more existential than the Iranian nuclear programme”.

Israel’s government did not appear to be trying “ to change the trend regarding the settlement enterprise,” he said. “Our friends in the world are giving up on the prospect of a two-states-for-two-nations solution.”

Mr Diskin said that there was “tremendous frustration in the West Bank. The Palestinians feel that their state is being stolen from them. Soon the Palestinian masses will feel that there is no future, only a bad past.”

The idea of a total freeze in West Bank settlement construction remains unpopular among many Israelis. A number of mainstream Likud politicians, including Deputy Defence Minister Danny Danon, have also spoken openly about their opposition to the creation of a Palestinian state.

Mr Diskin was one of the six living former Shin Bet chiefs interviewed in the documentary film, The Gatekeepers, which received worldwide critical acclaim and was nominated for an Academy Award.

In response to his comments, sources close to Prime Minister Benjamin Netanyahu dismissed the former Shin Bet chief as “someone who wanted to be appointed the head of the Mossad, but did not get the job”, according to the Jerusalem Post.

“Anyone who thinks that the Palestinian threat is greater than the threat of a nuclear bomb in the hands of Iran, which calls for the destruction of the state of Israel is divorced from reality and lacking any strategic vision,” the sources said.