"I think it is disappointing to hear that from the Israeli prime minister. There isn't another option, and the whole world has agreed that the two-state solution is the best way forward," he told Sky News.
Netanyahu has repeatedly said that he will never accept an independent Palestinian state on the Israeli border. He argues that Israel must have full security control over the Palestinian territory, which conflicts with the idea of Palestinian sovereignty.
Shapps reiterated that the UK government "absolutely backs" the creation of a Palestinian state as a lasting solution to the Israeli-Palestinian conflict.
"It needs to be viable, it needs to be sovereign on the Palestinian side. It needs that to provide security guarantees on the Israeli side, and there isn't another obvious way out of this," he stressed.
Shapps admitted that anti-Semitic attacks in the United Kingdom had been rising in parallel with Islamophobia since the Israel-Gaza war began last October. He said the UK government would not allow events in the Middle East to spill over into his country.