Israel has decided to cancel the release of a fourth group of Palestinian prisoners.
Israeli Justice Minister Tzipi Livni said Palestinian actions had violated the terms of the release, which was part of a US-backed peace process.
Palestinian leader Mahmoud Abbas has applied to 15 UN conventions, accusing Israel of backtracking on its promises.
Washington said Israel’s latest move “creates challenges”.
But White House spokesman Jay Carney said it would not deter US Secretary of State John Kerry from keeping talks between both sides going.
“There has been progress in narrowing some of the questions that have arisen as a result of the events of the last few days,” he said.
“Neither side has indicated that they want to walk away from the talks. They both indicated they want to find a way to move forward.”
Tzipi Livni was quoted as saying “new conditions were established and Israel cannot release the fourth batch of prisoners”.
She urged the Palestinians to avoid unilateral measures and return to the negotiating table, her spokesperson said.
In recent days, the US had reportedly been trying to broker a deal in which the Palestinians would agree to extend the peace talks beyond the end of April deadline in exchange for the releasing of prisoners by Israel, and the US would free Israeli spy Jonathan Pollard in return.
The previous three releases of Palestinian prisoners were deeply unpopular with the Israeli public because many of those freed had been convicted of murdering Israelis.
But the Palestinians – many of whom regard the prisoners as heroes – believed the final batch of prisoners would be freed under a US deal that got the talks started last year.
Each side blames the other for initiating that sequence of backward steps.
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