The decision put an end to months of grueling diplomacy which led the administration to conclude a focus on the settlements was distracting the parties from dealing with the core issues of the conflict.
As the administration sought a new strategy to save the peace talks, Clinton delivered a tough message that reflected the administration's impatience with both sides.
"You don't have to read secret diplomatic cables to know that we are meeting during a difficult period in the pursuit of peace in the Middle East," Clinton said, referring to the leaked cables on WikiLeaks.
Clinton warned that the demographic trends resulting from continued Israeli occupation of the Palestinian territories are risking Israel's future as a Jewish state, while extremism in the absence of peace is further jeopardizing its security.
"We conclude without a shadow of a doubt that ending this conflict once and for all and achieving a comprehensive regional peace is imperative for safeguarding Israel's future," she said.
Similarly, she added that the conditions Palestinians suffer due to the occupation are "unacceptable" and "unsustainable."
Clinton said the Obama administration would work with the parties to pursue a framework agreement on the core issues of the conflict: borders and security, settlements, water and refugees, and on Jerusalem, which would pave the way for the resumption of direct talks and a final peace deal.
Starting with borders, Clinton said the parties must "agree to a single line drawn on a map which divides Israel from Palestine" in a way that offers Palestinians an end to the occupation but protects Israel's security.
While acknowledging the fate of Palestinian refugees was a "difficult and emotional issue," Clinton said, "there must be a just and permanent solution that meets the needs of both sides."
