Israeli prime minister Binyamin Netanyahu has ordered government ministries to cut off high-level contacts with the Palestinians on non-security related issues, as the crisis in Middle East peace talks worsens.
Israel's move was a response to the recent Palestinian decision to submit applications to join 15 international organisations and conventions, which itself came after Israel failed to carry out the fourth and final release of Palestinian prisoners agreed to when peace talks resumed last July, under American auspices.
The latest Israeli move does not apply to security co-operation or to the ongoing discussions aimed at breaking the diplomatic impasse and reaching a formula to extend the talks beyond the nine-month deadline, which expires at the end of this month.
Palestinians said the Israeli move undermined efforts to revive the peace talks. Fatah official Jibril Rajoub described the action as “state terror”.
Arab League foreign ministers, meeting in Cairo, blamed Israel for the diplomatic deadlock and promised a financial safety net if Israel imposed economic sanctions on the Palestinians.
Negotiators are expected to meet again today but a senior Palestinian source said recent meetings had failed to bridge the gaps on a package deal to keep the talks alive.
He said the main obstacle was Israel's refusal to present a map with borders and settlement construction.
US secretary of state John Kerry, although criticising both sides for taking "unhelpful" steps, indicated that Israel was responsible for the current deadlock.
“Unfortunately, the [Palestinian] prisoners weren’t released when they were supposed to be, and when they were about to maybe get there, 700 settlement units were announced in Jerusalem, and poof, that was sort of the moment,” he told the Senate foreign relations committee.
However, Mr Kerry said he still hadn’t given up on the talks.
“The truth is the parties say they want to continue these talks,” he said.
Israeli officials expressed "deep disappointment" over Mr Kerry's comments.
Economy minister Naftali Bennett issued a swift response, saying “Israel will never apologise for building in Jerusalem”.
A senior Palestinian figure warned that if the talks were not extended, the Palestinians would apply to join dozens more international organisations.
He also said they would discuss with Hamas the holding of new elections in the West Bank and Gaza.
Israeli foreign minister Avigdor Lieberman suggested the negotiating format might have to be altered to include direct meetings between Mr Netanyahu and Palestinian president Mahmoud Abbas.