Speaking at the annual meeting of the Institute for Strategic Studies in Tel Aviv, US ambassador Daniel Shapiro said that Israel seems to apply "separate" standards of justice for Israelis and Palestinians.
"Too much (Jewish) vigilantism goes unchecked, and at times there seems to be two standards of adherence to the rule of law, one for Israelis, and another for Palestinians," said Shapiro.
He also said that Washington was "concerned and perplexed" over Israel's strategy of building settlements in the occupied West Bank, which raises questions about its commitment to establishing an independent Palestinian state.
Shapiro added that Israel had also legalised some illegal settler outposts in the West Bank despite pledges to the United States not to do so.
In the occupied West Bank, Israelis are subject to Israeli civil law, while Palestinians are governed by Israeli military law, which offers far fewer legal protections.
Palestinians and rights groups say that Israelis suspected in violence against Palestinians are rarely brought to justice, while Palestinian attackers are quickly arrested or killed.
The Israeli human rights group Yesh Din said Shapiro's comments were grounded in data they have been collecting that showed an 85 percent failure rate in investigating ideologically-motivated crimes by Israelis against Palestinians.
Over the past decade, the group says it has monitored the police's handling of 1,104 investigations opened following complaints of Palestinians. It says indictments were served against suspects in just 75 of these cases.
Shapiro's comments are a rare public rebuke against Israel's policies from its staunchest ally and drew an angry response from Prime Minister Benjamin Netanyahu.
Netanyahu's office insisted that Israel "applies the law on Israelis just as it does on Palestinians" and said Shapiro's comments were "not acceptable or just".