Israel confirmed it will not fulfil its pledge to release a fourth batch of Palestinian prisoners, in retaliation to the Palestinian authority's push for recognition at the United Nations.
In a blow to the stalled peace talks, Israel's chief negotiator with the Palestinians, Tzipi Livni, said the government will not open the gates of its jails for 26 long-term Palestinians as it had promised before negotiations resumed last year.
Livni's spokeswoman said the decision was in response to Palestinian president Mahmoud Abbas's surprise bid to sign more than a dozen international conventions.
"New conditions were established and Israel cannot release the fourth batch of prisoners," Livni said.
However, Abbas said he signed letters of accessions to 15 international conventions, including the Geneva Convention, in response to Israel's failure to release the prisoners.
The Palestinian move was aimed at bolstering their claims to statehood and challenging Israel's occupation of the West Bank before the UN and other organisations.
Israel earlier vowed to go ahead with plans to build more than 700 new homes in the Jewish settlement of Gilo in East Jerusalem.
Palestinians hope to appeal to the International Criminal Court and file formal complaints against Israel for continued occupation of territory seized in 1967. Israeli settlements are illegal according to international law.
US Secretary of state John Kerry said both parties' decisions were "unhelpful" and warned Israeli and Palestinian leaders that they must "lead" if they want to avoid seeing the talks crumble.