The UK government has let down Palestinian people and failed to make it economically impossible for Israel to continue to act with impunity in the West Bank and Gaza, the Labour chair of the foreign affairs select committee, Emily Thornberry, has said.

She accused her own government of lacking ambition and wringing its hands on the Palestinian crisis, and she chastised Donald Trump for declaring a ceasefire in Gaza and then walking away, leaving Gazans to live in rubble.

Thornberry has never been this critical of the government’s Middle East policy before and her remarks may find resonance in a potential Labour leadership contest that has so far included little mention of foreign policy.

She said the significant decision taken more than eight months ago to recognise Palestine as a state should have been the first step of many but nothing further had been done since to help bring about a two-state solution.

Thornberry said: “We knew, and we have to remember, that recognition was only the first step. Where is the second step, where is the 10th step, what are we doing?

“Anyone who believes that what Gazans have right now is a genuine ceasefire has to look at what the truth is. They need to look at the pictures of the children who have been bitten by rats as they sleep in displacement camps in mountains of rubble.

“More than 72,000 Palestinians have been killed, but we also know that the death toll continues to rise during this so-called ceasefire. Over 700 have been killed in Gaza since Donald Trump proclaimed ‘the greatest moment in humanity’.”

Pointing out that Benjamin Netanyahu, the Israeli prime minister, had announced last week that Israel intended to take over 70% of Gaza, Thornberry said: “The sense of impunity is staggering.”

She said: “I have always been so proud that Britain has always realised the importance of international law. It is something we are strong on, probably for good reason since much of international law was written by British lawyers. But when it comes to our record on Palestine, I am afraid we have fallen well short and in doing so we have failed the Palestinian people.”

Speaking at an event in Westminster on Monday night convened by Medical Aid for Palestinians and the Council on Arab-British Understanding, she said it was 682 days since the international court of justice published its advisory opinion on the lawfulness of the occupation of the Palestinian territory, but the UK government had still not published its formal response.

“If you accept the ICJ advisory opinion that settlements are illegal and states should do everything they can not to facilitate them, then there are certain actions that should follow logically,” she said.

“We should be banning the import of goods produced in illegal settlements. We should be going further. We should be placing sanctions on those involved in the settlements. We should be making sure we are stopping the involvement of any British companies. We should be coming down hard on insurance networks. We should be making it clear that it is not possible to construct settlements on the West Bank and we are going to do everything to stop it.”

She said it was also necessary for the UK to try to revive the group of states that backed the recognition of Palestine in 2025.

“Let’s together act together so we make sure that it is so economically painful for Israel that settlement expansion becomes untenable, because what is happening in the West Bank is untenable – families driven from their homes, communities under constant threat, Palestinians being lynched in the streets. That is what we should be confronting. Words of condemnation are just not going to cut it.

“The tragedy of Gaza is a lesson of what happens when you do too little, too late. We failed to intervene early enough. We failed to apply enough pressure when pressure might have made a difference, and we cannot let the West Bank suffer the same fate.”

Thornberry continued: “As for Gaza, we just have to stop pretending what exists today is a ceasefire because it is not.

“This is what Trump does. He publishes a piece of paper. He calls it a great victory. He calls it ‘the greatest peace from the greatest president ever’, then he calls it a day and then he walks away. Out of the news means out of mind. But the Gazans are not going anywhere and yet where is the progress? It is completely intolerable, yet we tolerate it. Where are the international summits? Where is the urgency? Where is the sustained diplomatic effort? We need Palestine back in the headlines and we need to have Britain playing a leading role in making that happen.”

She said many diplomats said the UK was a great convening power. “Well, if that is true, now is the time to prove it. Let’s convene.”