Earlier this month Attorney-General George Brandis said the Government did not recognise or accept the term “occupied” East Jerusalem.

Speaking in New York a couple of days later, Prime Minister Tony Abbott said: “The truth is they are disputed territories and let’s try to ensure that disputes are resolved fairly to all as best we can in an imperfect world.”

The language upset Arab and Islamic countries, who see the area as “occupied”, and the Palestinian delegation to Australia warned it could result in trade sanctions.

The head of the delegation Izzat Abdulhadi says the threat will not be acted on as long as there are no further inflammatory statements.

“So I mean it’s good to continue this type of discussion, whatever, but we don’t have the sort or reducing the trade process for the time being,” he said.

Mr Abdulhadi made the comment after a second meeting with the Foreign Affairs Minister Julie Bishop in a week.

Last Thursday Ms Bishop held a meeting with a large number of representatives from middle eastern countries in a bid to defuse the situation.

This morning she hosted a morning tea with Arab League countries at the Department of Foreign Affairs.

Ms Bishop said today’s meeting was part of a regular program of engagement with the diplomatic corps.

“I have been meeting with Heads of Mission from North and South America, from the European Union, from the non-European Union group and also here with those from the Arab and Islamic world,” she said.

Liberals, agricultural groups upset at Brandis’s comments

Earlier this week rural Liberals told the ABC they were very unhappy with Senator Brandis’s remarks about East Jerusalem.

One MP said they could have created a debacle of similar proportions to Labor’s 2011 decision to ban live cattle exports to Indonesia.

The MP accused Senator Brandis of “intellectual arrogance”, saying he does not spend enough time with normal people and instead operates in a Senate vacuum.

“George Brandis couldn’t sell lollies to children,” he said.

Another said: “Poor old George wouldn’t know a live animal if he fell on it.”

The ABC understands the issue was raised with Defence Minister David Johnston by a number of delegates at the West Australian Liberal Party’s State Council meeting in Manjimup, south of Perth, on Saturday.

Farming and pastoral groups have said little publicly about the issue. The ABC was told they were also disappointed by the remarks but did not want to inflame the issue by speaking out.

East Jerusalem, along with the rest of the West Bank, has been under Israeli control since the Six Day War in 1967.

A UN Security Council resolution issued in November that year declared the territories to be occupied, a word also used by the International Court of Justice and the UN General Assembly.