Israeli settlements on the West Bank represent a "blockage" in the Middle East peace process, Gordon Brown said today.

At a news conference in Downing Street with Salam Fayyad, the prime minister of the Palestinian Authority, Brown said he had consistently called for the settlements to be dismantled.

Brown and Fayyad spoke before the opening in London of a two-day Palestine trade and investment forum, which is intended to promote Palestinian economic development.

Talking about the peace process, Brown said: "Everybody now sees the contours of what a two-state solution would look like ... One of the blockages to that is clearly the settlement issue.

"We have consistently said – and I've said this to successive Israeli prime ministers and presidents when I've met them – we've consistently seen that as a barrier to reaching the agreement that everybody thinks is possible.

"And I hope that in the talks in the next few weeks and months this will be recognised as a barrier that's got to be overcome."

Brown welcomed the decision of the 22-member Arab League to write to Barack Obama last week asking him to make achieving a peace settlement a priority of his presidency. He said this was a "very important development".

The investment forum is designed to give British investors an overview of business and investment opportunities in sectors including finance, infrastructure, information and communications technology, agribusiness and tourism development. A 40-strong Palestinian delegation is taking part.

Speaking after his talks with Fayyad, Brown said there were "considerable opportunities" for economic partnership between Palestinians and the UK.

"The UK enjoys a close relationship with the Palestinian people and I hope today's conference will cement this. I hope in the coming days we can move further and faster towards the peace settlement that everyone wants to see happen," he said.

Brown also said a flourishing Palestinian economy would be necessary if the peace process was going to succeed.

"Establishing a viable Palestinian state with a stable economy and flourishing private sector is a crucial part of this process," Brown said.

The forum taking place in the City would provide a chance to explore further opportunities for development.

"It will promote Palestinian economic development. It will demonstrate the resilience of the Palestinian private sector. It will show the considerable opportunities for partnerships with the United Kingdom," he said.

Fayyad said the forum would be "a significant and important" step in the process of enabling the Palestinians to achieve their aspirations.

Tomorrow Brown will welcome the Israeli prime minister, Ehud Olmert, for talks at No 10, but Downing Street said the two visits were not linked.

Olmert's visit to London is expected to be his last as head of the Israeli government before he stands down in February to fight corruption allegations.

Olmert has tried to clamp down on illegal settlement outposts, but around 300,000 Israeli settlers remain among 3 million Palestinians in the occupied West Bank.