(CNN) -- Palestinian Authority President Mahmoud Abbas warned Saturday that peace talks would not move forward "as long as Israel maintains its settlement policy," continuing the rift in the region that began this month with Israel's intent to build housing in disputed territory.
The remarks came at the Arab Summit in the Libyan city of Sirte, where many leaders echoed Abbas' views.
The Arab League's Secretary-General, Amr Moussa, asked Arab states to prepare for "the possibility of the peace process' complete failure."
"It's time to face Israel. We have to have alternative plans because the situation has reached a turning point," Moussa said.
The conference -- titled "Summit for Supporting a Steadfast Jerusalem" -- gathered 14 Arab heads of state, the United Nations Secretary-General Ban Ki-moon and Italian Prime Minister Slivio Berlusconi, among other guests.
In an address before the leaders, Turkish Prime Minister Recep Tayyip Erdogan, a guest of Libyan leader Muammar Gaddafi, described the Israeli position as "madness" and said if Israel insists on building in East Jerusalem, they will violate international law, "human feelings, conscience and history."
Israeli Deputy Foreign Minister Danny Ayalon said the opinions expressed Saturday "have little basis."
"For too long our opponents have been able to talk about international law without being held to account," Ayalon said. "We say strongly and firmly that we have a legal right to build in Jerusalem. ... We call on the Palestinian Authority to cease living in delusions of forcing Israel to the pre-1967 lines and to come and join us at the negotiation table without preconditions."
Meanwhile, Ban urged Arab leaders to continue supporting U.S.-sponsored talks to revive the peace process.
Earlier this month, Israel announced the construction of 1,600 new settlement units in East Jerusalem. On Tuesday, Israel announced plans to build another 20 settlement units in the majority Arab neighborhood of East Jerusalem known as Sheikh Jarrah.
The United States has demanded that the construction be stopped, saying it is likely to poison the peace talks.
Palestinians fear that Israeli settlement expansion in East Jerusalem -- which they see as a future capital of a Palestinian state -- will prejudge final status negotiations on the borders of Israel and the Palestinian territory.
Fears were exacerbated recently when Israeli Prime Minister Benjamin Netanyahu said that "from our point of view, construction in Jerusalem is like construction in Tel Aviv." Many Palestinians saw Netanyahu's comment as another way of saying that all of Jerusalem belongs inside Israel's borders.
The Sheikh Jarrah neighborhood has become an area highly coveted by Jewish nationalists wishing to cement Jewish claims to the land, and it has become a fault line in the public debate about Israeli building in Arab areas of East Jerusalem. Every week hundreds of Palestinians, Israelis and international activists stage protests in the neighborhood to protest Israeli government building policies.
East Jerusalem was captured from Jordan in the 1967 war between Israel and its Arab neighbors. Israel claims sovereignty over all of Jerusalem, though it is a claim not recognized by the international community.
CNN's Amir Ahmed and Kevin Flower contributed to this report.