UN Secretary General Antonio Guterres held talks with Israeli leaders Monday on his first visit since taking office, making a forceful argument for a two-state solution with the Palestinians and speaking of his "dream" for peace.

Guterres also spoke of what he called obstacles to peace when meeting Prime Minister Benjamin Netanyahu, including Israeli settlement building and the need for Palestinian leaders to condemn "terrorism".

"I dream that I will have the chance to see in the Holy Land two states able to live together in mutual recognition, but also in peace and security," Guterres said in remarks at Netanyahu's office.

He recalled past secret talks between Israeli and Palestinian leaders at his office when he was Portugal's premier from 1995 to 2002, saying it had exposed him to the difficulties of the peace process.

Guterres spoke of improving economic and social conditions for Palestinians to provide them with a "dividend" and incentive for peace.

His meeting with Netanyahu was part of a three-day visit that ends Wednesday.

It came at a time of growing doubt around a two-state solution to the long-running conflict, long the goal of internationally backed peace talks.

Earlier Monday, he met President Reuven Rivlin, and he is due in Ramallah on Tuesday for talks with Palestinian prime minister Rami Hamdallah.

Palestinian president Mahmud Abbas is in Turkey and not expected to meet Guterres during the trip.

Guterres will travel to the Gaza Strip on Wednesday, with UN officials calling for an end to Israel's blockade of the densely-populated Palestinian coastal enclave in order to ease deteriorating humanitarian conditions.

Israel and Palestinian militants in Gaza, including Islamist movement Hamas which runs the territory, have fought three wars since 2008.

On Monday, the head of Hamas in Gaza, Yahya al-Sinwar, said the movement had increased its military capabilities thanks to newly improved relations with Iran, but stressed it was not seeking war.

- Concessions not possible? -

After arriving on Sunday evening, the UN chief met Jason Greenblatt, a top aide to US President Donald Trump charged with pursuing Israeli-Palestinian peace efforts.

Greenblatt was part of a US delegation last week, including Trump's son-in-law Jared Kushner, that held talks with Netanyahu and Abbas. He remained in the region for further discussions.

Peace efforts have been at a standstill since April 2014 but Israeli settlement building in the occupied West Bank has continued.

Trump has said he wants to reach the "ultimate deal", but he himself has cast doubt on the two-state solution, saying he could support a single state if it meant peace.

Such statements deeply concern Palestinians but have delighted rightwing Israelis who want their country to annex most of the West Bank.

The two-state solution envisions an independent Palestinian state alongside Israel, and has been the focus of international diplomacy since at least the early 1990s.

At the same time, many analysts say neither Netanyahu nor Abbas are able to make any major concessions for now.

Netanyahu faces pressure from his right-wing base to keep a hard line and to continue settlement building. There is little incentive at the moment for him to change course, analysts say.

The 82-year-old Palestinian leader is unpopular and his Fatah party, based in the West Bank, is in a long-running feud with Hamas in Gaza.

- Iran, Syria -

While Guterres spoke at length in his public comments on Monday on the Israeli-Palestinian conflict, Israeli leaders' interests lie elsewhere for now.

Netanyahu pressed Guterres on the UN peacekeeping force in neighbouring Lebanon, known as UNIFIL, which Israeli officials have accused of "blindness" to what they call an arms buildup by the Shiite group Hezbollah.

The trip comes as the UN Security Council debates renewing the force's mandate for a year, with a vote expected on Wednesday.

Guterres told Netanyahu: "I will do everything in my capacity to make sure that UNIFIL fully meets its mandate."

UN spokesman Stephane Dujarric has expressed "full confidence" in the force's commander.

Netanyahu also spoke of what he sees as Israel's arch-rival Iran seeking to expand its presence in the Middle East, particularly in neighbouring Syria.

He accused Iran of building sites to produce "precision-guided missiles" in both Syria and Lebanon.

Netanyahu again accused UN bodies of bias against his country, saying they had "an absurd obsession with Israel" and calling on Guterres to address it.

Defence Minister Avigdor Lieberman, in a separate meeting with the UN chief, issued a firm warning to residents of southern Lebanon across the border from Israel.

"The Lebanese government and residents of southern Lebanon should know that Israel will act with force if missiles are fired at its civilians," he said.

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