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"Israel's unilateral declaration on the cessation of settlement activities in the Palestinian territories is an incomplete step and not compatible with the requirements of achieving peace," Egyptian Foreign Minister Ahmed Abul Gheit said in a statement.
Cairo also rejected the exception of East Jerusalem and the 10-month time limit in the Israeli offer.
The Israeli position would be "rejected by the international community, including the United Nations, the International Quartetand the United States," Abul Gheit said, adding "the actual freeze of the settlement over the period of negotiations rather than a limited period is the real and only way for the resumption of the negotiating process."
Cairo reiterated its support for the Palestinian demands that Israel freeze settlement activity, including all the Palestinian territories occupied in 1967 and East Jerusalem."
"The resumption of the negotiation must be based on confidence-building," Abul Gheit said, who also demanded the U.S. administration to continue its peacemaking efforts.
Israeli Prime Minister Benjamin Netanyahu Wednesday evening announced a 10-month freeze on construction in Jewish settlements in the West Bank, but the offer would not cover predominantly Arab East Jerusalem, which is viewed by Israel as a separate issue to be discussed in a final status agreement with the Palestinians.
Both the Palestinian National Authority, which controls West Bank, and the Gaza-ruling Hamas rejected the Israeli offer.