US secretary of state John Kerry has blamed Israel's decision to build 700 apartments for Jewish settlers in East Jerusalem and its refusal to release Palestinian prisoners as promised for stalling peace negotiations with the Palestinians.

Following eight months of apparently futile discussions, the Israelis and the Palestinians have hit stalemate but only have until the end of April to avoid the talks collapsing altogether. Although both sides are still talking, the prospect of a breakthrough is growing weaker as the row is about how to proceed and not on substantial political and diplomatic issues.

In a testimony before the Senate foreign relations committee, Kerry accused both sides of "unhelpful" actions. He singled out Israel's publication of tenders for housing units days after it failed to commit to freeing Palestinian prisoners.

Kerry said: "There are limits to the amount of time the president and myself can put into this, considering the other challenges around the world, especially if the parties can't commit to being there in a serious way.

"Poof, that was the moment."

The secretary of state, who is scrambling to broker an agreement on principles between the two parties, criticised the Palestinian Authority for applying to join 15 international agencies although he accepted that such moves were in response to Israeli actions. The applications have been seen as a step towards unilateral recognition of the Palestinian state.

The tit-for-tat cycle may leave the US with no choice but to abandon its role as mediator.

If the negotiations break down, Palestinian leaders would be likely to apply to sign up to other international conventions including the International Criminal Court. That would enable them to start legal proceedings against Israel for alleged war crimes related to the occupation of the West Bank and east Jerusalem after the 1967 Middle East war.

Kerry said that if Palestinian president Mahmoud Abbas applied to join UN agencies "he's automatically in them tomorrow". If Palestinians went down this path, he said, they could "make life miserable for Israel".

Israel's economy minister Naftali Bennet, a hardline nationalist and pro-settler leader of the Jewish Home party, threatened counter-suits at the ICC linked to rocket fire out of the Palestinian territory of Gaza.

"If [Abbas] intends to sue Israel, he needs to know that a personal suit on war crimes that are committed daily by him awaits him," Bennett told Army Radio.