New Zealand is critical of a decision by Israel to build 3000 new homes for Jewish settlers in the West Bank.
Foreign Affairs Minister Murray McCully says continuing the settlement process is an impediment to peace in the area.
The Palestinian Authority says these and earlier settlements undermine the basis for a Palestinian state on the West Bank and the Gaza Strip.
New Zealand supported a vote on Thursday at the United Nations General Assembly in New York to upgrade the Palestinian status at the UN.
The General Assembly voted 138-9 in favour. Another 41 nations abstained.
Mr McCully says people believe the two sides in the Middle East are able to talk to each other and resolve this matter once and for all and settlement activity is not productive in this sense.