EU foreign policy chief Federica Mogherini on Tuesday voiced concern about escalating violence in the Israel-Palestinian conflict and urged progress toward a two-state solution.

"We need a Palestinian state living in peace and security next to the Israeli state," said Europe's top diplomat in Berlin, after recently visiting Israel and the Palestinian territories.

"And I am particularly sad and worried about the escalation of violence that we are witnessing these hours," she told reporters, flanked by German Foreign Minister Frank-Walter Steinmeier.

Recent violence had "demonstrated very clearly that if we do not offer political perspective both to the Israelis to live in security and to the Palestinians to have a state, their own state, violence will come back", she said.

"I know that we can work closely together in that direction" in the 28-member EU, she said.

In recent weeks tensions have soared, with Israel pushing plans to build new Jewish settlements in east Jerusalem and Jewish extremists demanding the right to pray at the flashpoint Al-Aqsa mosque compound.

The fatal stabbing of two young Israelis further heightened tensions as Palestinians were set Tuesday to commemorate the 10th anniversary of the death of iconic leader Yasser Arafat.

Palestinians are seeking to achieve statehood in Gaza and the West Bank with annexed east Jerusalem as their capital. Israel claims Jerusalem as its undivided and eternal capital city.