British Prime Minister Theresa May's spokesperson said Britain supports a two-state solution and believes the construction of settlements on Palestinian lands is illegal.
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"But we are also clear that the settlements are far from the only problem in this conflict.
"In particular, the people of Israel deserve to live free from the threat of terrorism, with which they have had to cope for too long," the spokesperson said in a statement.
The comments from Downing Street come a day after Kerry issued a stern warning to Israel in which he said building settlements threatens the country's future as a democracy.
Kerry accused Prime Minister Benjamin Netanyahu's government of allowing Israel to slide towards a "perpetual occupation."
Without referring to the secretary of state's comments, the British government's comments appeared to criticise Kerry's speech.
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"We do not, therefore, believe that the way to negotiate peace is by focusing on only one issue, in this case the construction of settlements, when clearly the conflict between the Israelis and Palestinians is so deeply complex," May's spokesperson said.
"And we do not believe that it is appropriate to attack the composition of the democratically-elected government of an ally. The government believes that negotiations will only succeed when they are conducted between the two parties, supported by the international community," they added.
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The statement follows a UN Security Council resolution last week which effectively declared Israel's settlements on areas of east Jerusalem and the West Bank beyond its 1967 border illegal.
In a rare move the US refrained from vetoing the resolution, which was backed by all the remaining members of the 15-member council including Britain.
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