Former Foreign Office minister Baroness Warsi has launched a withering attack on the Government's policy on the Middle East peace process, warning it was no longer an "honest broker".

Lady Warsi said the policy of a two-state solution with a negotiated settlement was not working and was "flawed".

She told peers: "Different strands of our policy are simply not viable and no longer hold true. We know that our policy is not working - yet we continue to stick to it."

In her first speech in the Lords since suddenly quitting in August over the Government's response to the then-crisis in Gaza, Lady Warsi accused ministers of not responding to the reality of changes on the ground.

"This approach damages our reputation both at home and abroad - and sadly no longer makes us an honest broker."

The Tory peer was sitting just behind her successor at the Foreign Office, Baroness Anelay of St Johns, as she launched her attack.

When she resigned, Lady Warsi branded the Government's policy on the crisis in Gaza during the conflict with Israel "morally indefensible" and she repeated that charge today in a debate on the Middle East.

Outlining the failure of talks to achieve peace between Israel and Palestine, Lady Warsi claimed Israel had effectively been given a veto over the process.

She said Britain condemned Israel's "illegal settlements" in the region and said they threatened the viability of a two-state solution.

"But what consequences ever follow from that condemnation? The 1967 borders of the West Bank, Gaza and Jerusalem are not lawfully part of the state of Israel."

A line had been drawn in international law but every year this was "violated" by Israel with a growing number of "settlers".

She said that, as Tory minister Sir Alan Duncan had stated: "Settlements are simply an act of theft, initiated and supported by the state of Israel."

They created "enclaves of Palestinians, cut off from each other ... and cut off from a viable existence. So it is an organised and planned strangulation of what we call a two-state solution," Lady Warsi added.

Lady Warsi said the Government's policy no longer held true. "The situation on the ground has so changed and continues to do so that what we say we seek is unlikely to be achieved.

"We say we have a position: we condemn. But the actions of that condemnation are not there to be seen. No consequences follow.

"We prefer private to public diplomacy - and I agree with that - but I fail to see those tough private conversations."

Lady Warsi said that if the Government was not prepared to move to a recognition of Palestine, it must say what conditions must be met and set out a "pathway" in the interests of transparency.

Her comments came after Sweden's new government said it has recognised a Palestinian state.

Lady Warsi told peers it was because of the concerns she had raised today as the then-minister with responsibility for human rights and not because she was a Muslim, that she concluded: "I could no longer defend our policy at the despatch box.

"Our current position on this issue is morally indefensible. It is not in Britain's national interest and will have a long-term detrimental impact on our reputation internationally and domestically.

"It is time for us to start to be on the right side of history."

Former chief rabbi Lord Sacks said there had been a retreat from secularisation across the Middle East as people felt "betrayed" by secular governments and were turning back to Islam.

But he warned: "When ancient theologies are used for modern political ends they speak a very dangerous language indeed.

"So, for example, Hamas and Hezbollah both self-define as religious movements and refuse to recognise the legitimacy of the state of Israel within any boundaries whatsoever and seek only its complete destruction.

"The Islamists also know that the only way they can win the sympathy of the West is by demonising Israel.

"They know you cannot win support for Isis, Boko Haram or Islamic jihad, but if you can blame Israel you will gain the support of academics, unions and part of the media and it will distract attention from the massacres in Syria and Iraq, the slow descent of other countries into chaos and the ethnic cleansing of Christians throughout the region."

The independent crossbench peer said: "To be free you have to let go of hate. If you let hate speech infect the West as has already happened in some of our embassies, prisons and schools then our freedom too will be at risk.

"I and the vast majority of the Jewish people care deeply about the future of the Palestinians.

"We want Palestinian children, no less than Israeli children to have a future of peace, prosperity, freedom and hope, which is why we oppose those who teach Palestinian children to hate those with whom they will one day have to live and to take money given for humanitarian aid and use it to buy weapons and dig tunnels to take the region back to a dark age of barbarism.

"The religion in whose name atrocities are being carried out - innocent people butchered and beheaded, children treated as slaves, civilians turned into human shields and young people into weapons of self destruction - is not the Islam that once earned the admiration of the world and nor its god, the god of Abraham."