"The only guarantee for peace is the establishment of a Palestinian state alongside the state of Israel, living in security, peace and mutual recognition," Guterres said at a Tuesday news conference in Ramallah with Palestinian Prime Minister Rami al-Hamdallah.
"Israeli settlement construction is illegal and constitutes an obstacle that must be removed in order to implement a two-state solution," he added.
The U.N. chief went on to urge both Israel and the Palestinians to refrain from taking any action that could undermine the prospects for a peaceful settlement.
Guterres also voiced concern about the Hamas-run Gaza Strip's deteriorating humanitarian situation, stressing the U.N.'s commitment to the blockaded enclave's reconstruction and efforts by Palestinian President Mahmoud Abbas to end years of internal Palestinian division.
Al-Hamdallah, for his part, called on the world body to "protect the Palestinian people and Muslim holy sites" from repeated Israeli violations.
"I discussed with the U.N. secretary-general the latest developments regarding the political, economic and humanitarian situation in the West Bank, Jerusalem and Gaza strip," al-Hamdallah said.
"The failure to oblige Israel to implement [U.N.] resolutions… weakens the position of the Palestinian people and the U.N.'s credibility and fuels conflict in the region," he added.
The prime minister went on to assert that the Palestinian leadership "supports the establishment of a Palestinian state -- with East Jerusalem as its capital -- through popular resistance and international action."
On Monday, Guterres met with Israeli Prime Minister Benjamin Netanyahu in Jerusalem. On Wednesday, he is expected to visit the Israeli-blockaded Gaza Strip.