US President Barack Obama has threatened to drop the veto at the United Nations Security Council that America uses to block anti-Israel measures, in response to continued rejection of US demands regarding the Middle East peace process.

"The prime minister told colleagues in recent days... that his office's understanding of the issue and the government's take on it is that the Americans will not cast a veto against a resolution that reaches the Security Council," Ariel Kahana, diplomatic correspondent for the Makor Rishon daily, told The Algemeiner.

Another Israeli daily, Maariv, published a report that quoted an Israeli politician as saying: "Obama intends to abandon Israel as it faces the UN Security Council in an effort to block Israel's decision to build on Palestinian territory that has been occupied since 1967."

The outlet described the current tensions between Tel Aviv and Washington as "quite shocking and something that negatively affects relations between Tel Aviv and Washington".

The threat comes after the US condemned "unfortunate" Israeli plans to build 500 further housing units in east Jerusalem where tensions are running high following the hit-and-run killing of a three-month-old baby by an Arab-Israeli citizen and the resulting clashes between Palestinians and Israeli security forces.

Future Palestinian state

The unprecedented threat of a US veto not being wielded in the UN Security Council against anti-Israel measures comes as Palestinian Authority President Mahmoud Abbas threatens to table a draft resolution at the United Nations for the creation of a Palestinian state.

In a controversial United Nations speech in September, Abbas did not go as far as to confirm that he will pursue war crimes charges against Israel at the International Criminal Court (ICC) but said he would attempt to pass a UN resolution that would remove Israeli forces from a new Palestinian state.

The Palestinian-Arab United Nations draft resolution, if tabled, will propose the removal of Israeli forces from east Jerusalem, the Gaza Strip and the occupied West Bank, with the creation of an independent Palestinian state within the 1967 war lines by 2016.

The text of the bill states an Israeli withdrawal must happen "as rapidly as possible and to be fully completed within a specified timeframe, not to exceed November 2016, and the achievement of the independence and sovereignty of the State of Palestine and the right to self-determination of the Palestinian people".

The draft resolution also "demands an end to all Israeli military operations, reprisals, forced displacement of civilians and all acts of violence and hostilities".

'Chickens**t prime minister'

The lull in US-Israeli relations comes after an anonymous US official called Israeli Prime Minister Benjamin Netanyahu a "chickens**t" prime minister.

The official, whose comments were quoted in an interview with Jeffrey Goldberg of The Atlantic, also said Netanyahu was a "coward".

"The good thing about Netanyahu is that he's scared to launch wars. The bad thing about him is that he won't do anything to reach an accommodation with the Palestinians or with the Sunni Arab states," the official said.

"The only thing he's interested in is protecting himself from political defeat. He's not [Yitzhak] Rabin, he's not [Ariel] Sharon, he's certainly no [Menachem] Begin. He's got no guts."