US Defence Secretary Leon Panetta on Monday urged Israel and the Palestinians to take "bold action" to end the Middle East conflict while also scolding US lawmakers for blocking aid to the Palestinians.

"There is a need and an opportunity for bold action on both sides to move towards a negotiated two-state solution," Panetta told a joint news conference with his Israeli counterpart, Defence Minister Ehud Barak.

"There is no alternative to negotiation."

In a bid to push both sides to revive direct talks that ran aground last year, the Pentagon chief on Monday met Barak in Tel Aviv, Palestinian president Mahmud Abbas in the West Bank city of Ramallah and Prime Minister Benjamin Netanyahu in Jerusalem.

Panetta's visit comes just 10 days after the Palestinians formally presented a request to the United Nations to be accepted as a full member state, a diplomatic campaign that emerged from the collapse of direct negotiations in a bitter dispute over Jewish settlement building.

Israel and Washington are strongly opposed to the UN bid, saying a Palestinian state can only come from direct negotiations between the parties, but frustrated Palestinians see the move as a bold step to pile pressure on Israel and its main ally, the United States.

Major powers are now urging both sides to embrace a proposal from the Mideast Quartet for a renewal of talks within the next month aimed at securing a deal by the end of 2012.

"My main message is to both sides: you don't lose anything by going into negotiations," Panetta said in remarks to reporters ahead of his arrival.

"One thing that's been made clear... is that you're not going to achieve Middle East peace by trying to slamdunk it in the UN. The only way you're going to achieve it is by negotiations."

The Ramallah visit -- hastily arranged after the UN move -- marked the first time a senior US official has met Abbas since the Palestinian leader submitted the request to the United Nations on September 23, which set off a flurry of US diplomacy designed to delay any UN action.

In the US Congress, pro-Israel lawmakers on two key committees have moved quickly to freeze $200 million in economic aid to the Palestinians in response to the campaign for UN recognition.

But Panetta criticised the move on Monday, saying: "This is a critical time. This is no time to withhold those funds."

The Arab League on Sunday vowed to step in to make up any shortfall, appealing to member states to increase financial aid to the Palestinians.

Abbas adviser Nimr Hammad said Monday's meeting would be a chance to seek a shift in Washington's position on the UN bid, which the United States has promised to veto.

"We expect we'll hear the US arguments particularly on the UN approach and we want clarity from him, especially on whether they consider an independent Palestinian state to be in the national interest of the United States," he said.

"If that is the case, then we will ask him why there is such strong and unreasonable opposition to the bid for membership for the state of Palestine."

Washington is concerned that the Palestinian campaign for UN membership may raise popular expectations that will only end in disappointment, and may even lead to a new outbreak of violence.

Panetta was expected to appeal to both sides to contain tensions on the ground, a senior defence official said.

Speaking ahead of his Middle East tour, Panetta also stressed the importance of Israel shoring up its ties with Egypt and other regional players as it faced mounting diplomatic isolation.

"There's not much question in my mind that they maintain that (military) edge. But the question you have to ask is: is it enough to maintain a military edge, if you're isolating yourself in the diplomatic arena?" Panetta said.

"At this dramatic time in the Middle East, when there have been so many changes, it's not a good situation for Israel to become increasingly isolated. And that is what's happening," he said.