RAMALLAH (AFP) - US Secretary of State Condoleezza Rice warned on Sunday that Israeli settlements in the occupied Palestinian territories must not block any final Middle East peace agreement. "No party should be taking steps at this point that could prejudice the outcome of the negotiations," Rice told reporters after meeting Palestinian President Mahmud Abbas in the West Bank town of Ramallah. "The US will not consider these activities to affect any final-status negotiations including final borders," she said about the expansion of Israeli settlements in the occupied West Bank and east Jerusalem. "The actions and the announcements that are taking place are having a negative effect on the atmosphere of the negotiations," Rice said in one of the clearest criticisms Washington has made of the settlements. She made the remarks on her 17th visit to the region in less than two years, a trip aimed at injecting fresh impetus to Middle East peace talks that have made little progress since they were relaunched in November. "The situation in the Middle East, like always, is complicated," Israeli Foreign Minister and chief negotiator Tzipi Livni told reporters before meeting Rice earlier on Sunday. "And while negotiating with the Palestinians, we need to address also difficulties on the ground, especially the situation in the Gaza Strip." "Jerusalem is Jerusalem. The West Bank is the West Bank," Israeli government spokesman Mark Regev told reporters earlier Sunday. "It is clear to everyone that the Jewish neighbourhoods of Jerusalem will remain part of Israel in any possible final status agreement," he added. "We asked Dr Rice to help us to compel Israel to adhere to its obligations regarding the settlements because we consider them the biggest obstacle in the way of the peace process," Abbas said at the news conference with Rice. "The gap in the negotiations between the two sides is still very wide... there has been no progress on any of the final-status issues," senior Palestinian negotiator Saeb Erakat told AFP. "The main obstacle that is destroying the peace process and the trust in it is the continuation of the settlements and the imposition of facts on the ground," he said ahead of Rice's meeting with Abbas. Earlier on Sunday Rice met Israeli Defence Minister Ehud Barak, who has warned that his Labour party would join the opposition in voting to dissolve parliament if Olmert's Kadima party does not name a new premier. "I understand the security considerations as well as anyone but the obligation was undertaken to improve the lives of the Palestinians," she told reporters on Saturday. Rice also held a joint meeting with the heads of the negotiation teams - former premier Ahmed Qorei for the Palestinians and Livni, who is widely favoured to succeed Olmert in the absence of early elections.