JERUSALEM: Israeli and Palestinian negotiators held a fresh round of US-mediated talks Thursday to try to revive crisis-hit peace talks, officials said.

“The gaps are narrowing, but any speculations about an agreement are premature at this time,” said US State Department spokeswoman Jen Psaki.

Washington remains in “intensive negotiations” with both sides, Psaki told reporters, but stressed that reports of a deal were “inaccurate” as Israel announced it was going to sanction the Palestinians by freezing taxes it collects on their behalf.

“We're working, as you know, to determine what the path forward is for these negotiations, and that is up to the parties.”

The talks hit a new impasse last week after Israel refused to release a final batch of Palestinian prisoners and the Palestinians retaliated by seeking accession to several international treaties.

US Secretary of State John Kerry blamed Israel this week for the deadlock as Washington mulled how much more time and effort to put into the faltering negotiations.

American envoy Martin Indyk presided over Thursday's meeting in Jerusalem between Israel's chief negotiator, Justice Minister Tzipi Livni, and her Palestinian counterpart, Saeb Erakat, a Palestinian source close to the talks said.

Also present were Yitzhak Molcho, a confidant of Prime Minister Benjamin Netanyahu, and Palestinian intelligence chief Majed Farah.

The Palestinians were pushing for the release of a final batch of prisoners, a commitment Israel reneged on in a move that sparked the crisis.

An Israeli official told AFP that “Israel wants to return to talks and overcome the current crisis.”

And Israeli television later reported that the two sides were on the verge of a deal to extend peace talks beyond their April 29 deadline.

The deal, which could be finalised within “a few days,” would see a final batch of Palestinian prisoners released in return for Washington freeing American-born Israeli spy Jonathan Pollard, Channel 2 television said.

Sources in Washington said the Palestinians would refrain from pursuing accession to the treaties, Channel 2 said, and both sides would agree to extend the talks beyond April 29.

Pollard reports 'incorrect'

“According to the source, the agreement will include the release of Palestinian prisoners, including Arab-Israelis, in exchange for the release of Jewish American spy Jonathan Pollard,” the report said.

But insisting there was no deal yet, Psaki said “no decision has been made about Jonathan Pollard.”

The Israelis have repeatedly asked Barack Obama and previous US presidents to release Pollard, sentenced to life in 1987 for passing US secrets on Arab and Pakistani weapons to Israel.

Pollard is eligible for release from November next year.

And Psaki revealed that Indyk would be returning to Washington this week for consultations with Kerry and the White House.

He would then return to the region some time next week.

Freeing the Palestinian prisoners was among “a range of issues that are being discussed,” Psaki said.

A Palestinian official also denied any deal was yet on the table, telling AFP there was still a “deep chasm” between the two sides.

That chasm was highlighted late Thursday when Israel announced sanctions on the Palestinians, whose actions an official said were in “flagrant violation of accords” between the two sides.

“It has been decided to freeze the transfer to the Palestinian Authority of the taxes collected by Israel on its behalf,” the official told AFP on condition of anonymity.

At the same time, Israel was suspending its participation with the Palestinians in developing a gas field off the Gaza Strip and putting a cap on Palestinian deposits in its banks.

However, the official also said that “discussions under the aegis of the United States to overcome the talks crisis will continue.”

When Israel refused to release 26 long-time Palestinian prisoners, it went back on a pledge it made at the launch of the peace talks.

The Palestinians responded by abandoning their own commitment not to seek international recognition until the nine months of talks ended, applying for accession to 15 treaties.

The United Nations said Thursday it had accepted the deposit of the request, but Psaki said that was merely “a technical step... so I don't think it changes, necessarily, what we're negotiating now.”

On Tuesday, Kerry blamed Israel for the crisis, pointing to its April 1 decision to issue tenders on 708 Jewish settlement homes in occupied Arab east Jerusalem.