Ambassadors from Islamic nations will sit down with Foreign Minister Julie Bishop in the coming week to quell a diplomatic row that could impact on Australian exports.

The meeting comes just a few weeks out from a yet to be formally announced visit to Australia by Israeli PM Benjamin Netanyahu.

Islamic nations are furious at the Abbott government’s refusal to call Israeli settlements in East Jerusalem “occupied”, and want to know why this controversial policy change was made without any consultation.

A group of ambassadors from Islamic countries – including key cattle and sheep export markets – have warned they could block Australian farm exports to the Middle East if the position isn’t reversed.

The move would be disastrous for Australian farmers and could jeopardise the government’s efforts to break into new export markets in Saudi Arabia and Iran.

Prime Minister Tony Abbott said Ms Bishop would meet with ambassadors in Canberra to explain the government’s position and tell them there had been no change in policy.

“There’s been a terminological clarification,” Mr Abbott told reporters in Houston on Saturday.

“We absolutely refuse to refer to ‘occupied’ East Jerusalem.

“(But) there has been no change whatsoever to our strong support for a two-state solution, to our position on resolutions 242 and 338, or our commitment to a significant aid program to Palestine.”

Mr Abbott said people were reading too much into what began merely as an argument between Attorney-General George Brandis and Greens senator Lee Rhiannon.

“In the end, given the particular sensitivities in the Middle East right now … we all have to be conscious of being constructive.”

UN Security Council resolution 242 established in 1967 the principles that were to guide the negotiations for an Arab-Israeli peace settlement.

Resolution 338, adopted in 1973, called for a ceasefire in the Yom Kippur war and talks on a “just and durable peace”.

Some Islamic nations are reportedly considering a motion in the UN General Assembly condemning Australia.

Mr Netanyahu, who would be the first sitting Israeli PM to visit Canberra, told the opening of his most recent cabinet meeting that Australia’s change of words was “courageous” and “refreshing”.

He said Australia had refused to “sanctify a lie” and anyone who was interested in a peaceful resolution should realise it must be based on truth, and not “historical lies”.