AFP - British Foreign Secretary David Miliband said in Jordan on Tuesday that Israeli settlements remain an "obstacle to peace" between the Palestinians and Israel.

"Settlements are illegal in our view and an obstacle to peace settlement in the West Bank and East Jerusalem," Miliband told a news conference after talks with King Abdullah II.

"The settlements challenge the heart of... a Palestinian state."

His remarks came as US Secretary of State Hillary Clinton, who is on a regional tour, faces an Arab backlash after praising Israel's plan to ease settlement growth.

Clinton extended her trip to Egypt after she was criticised for calling "unprecedented" steps that Israeli Prime Minister Benjamin Netanyahu said he would take to limit settlement growth -- steps that fall far short of previous US demands for a complete halt to all settlement activity.

She later clarified her comments to say that Washington still considers the settlements to be illegal.

"It's so important for all those who care about security and social justice in this region that discussions about borders and territory are restarted in a serious way, because if you can progress on border and territory, you can resolve the settlements issue," Miliband said.

"The settlements are obviously an obstacle."

Miliband, who also held talks in Amman with US Middle East envoy George Mitchell, described the situation in Jerusalem as "tense."

"The current situation is obviously particularly tense in respect of Jerusalem. We view events there with considerable concern, along with our EU and international partners," he said.

"We view with particular concern... the recent report of settlers moving into a Palestinian family's home today."

Dozens of Israeli settlers took over a house in mostly Arab east Jerusalem on Tuesday armed with a court order secured after a protracted legal battle with a Palestinian family, witnesses and police said.

Members of the Al-Kurd family demonstrated outside the house along with other Arab residents and pro-Palestinian activists as the settlers hurled the family's belongings into the street, a neighbour told AFP.

Miliband, meanwhile, said any alternatives to a two-state solution to the Palestinian-Israeli conflict are "dark and unwelcome."

"It's important we don't lose sight of the importance of a two-state solution for all peoples of the region. I think the alternatives are dark and unwelcome for all sides," he said.

He called for finding "a credible root to a credible (Palestinian) state and credible peace" in the region.