Welby instead urged those gathered at the Shimon Peres Center for Peace in Tel Aviv to "embrace complexity".
Speaking in front of a mixed group of Muslims, Christians and Jews the Archbishop said: "Religion is an extremely effective hook to deal with complex issues and simplify them.
"If you say 'you're Jewish you're good' and 'they're Christian, they're bad' – that's nice and simple. You can get people behind you. But what you've done is use religion as a hook and if you use the hook for long enough it becomes part of the reality of the problem, and that's the huge danger in places where religious feeling runs high."
He added, "When you hear leaders trying to simplify and turn complex issues into simple ones then be very very suspicious."
Justin Welby's 12-day tour of the Holy Land, which began in Jordan draws to a close this evening. The Archbishop has had 80 meetings with both political and religious leaders, as well as local people.
Welby was at the center to learn about reconciliation projects between Jews and Arabs. Chemi Peres, the son of the late Israeli President Shimon Peres, told Welby the centre's peace work would continue "until such point where the great vision of Isaiah will become true: 'They will beat their swords into ploughshares, spears into pruning hooks. They will not teach war anymore and one people will not fight the other'."
When asked whether he'd support a one state or two state solution, the Archbishop hesitated. He said it would be "arrogant" to tell Israel what to do as he wasn't "qualified" to say.
Instead he urged those gathered to continue their reconciliation work: "Each week of conflict needs a year of reconciliation because once you kill someone, they tell their children 'you can't trust them, they killed my friend' and it goes on down the generations."
Defining reconciliation as "the point at which violence is unimaginable," Welby cited the example of Germany and the UK after the Second World War. "We behave in a relatively civilized manner, because it's become unimaginable to do anything else" he explained.
"Reconciliation is a mixture of event which gives momentum and patient work which brings a change of heart deep down and is almost unknown in our world today, even in places which have achieved some kind of peace...We have to be willing to spend years at this."
Welby, who has listed reconciliation as one of his major priorities during his time as Archbishop of Canterbury added, "If you get involved in reconciliation it's a very addictive drug. It's a bit better than most other substances because when you see hearts changed, you just want to go on doing it more and more."
The Archbishop, who has continually spoken of "the need for peace" during his trip, said "The poor are the ones who suffer in times of conflict more than anyone else."
When challenged on why he was speaking about grassroots reconciliation rather than a political settlement, Welby said both were important: "The process has to be top down, bottom down, middle out. You have to hit all levels."
"The first things leaders have to think about in the morning and the last thing they have to think about at night is 'how can we have peace in this region?'"
