The United States, Israel and the Palestinian Authority are negotiating a grand bargain to salvage peace talks and extend them until the end of 2014.

Israeli officials said that as part of the deal the United States may release jailed Israeli spy Jonathan Pollard in exchange for Israeli concessions - including a freeze on most settlement construction and the release of hundreds of Palestinian prisoners including 14 Israeli Arabs jailed since before the Oslo Accords were signed in 1993.

Senior Palestinian officials said that Palestinian President Mahmoud Abbas had refused to discuss any Israeli proposals until Jerusalem agreed to carry out the fourth stage of the prisoner release - including the Israeli Arabs.

Abbas' insistence on that matter was apparently what brought about the American decision to consider Pollard's release, as a way of "sweetening the deal" to secure the release of the Israeli Arabs.

Immediately after, an Israeli official announced that Pollard may be released as part of the talks, White House Spokesman Jay Carney told reporters that he had no updates, adding that Pollard is a convicted spy serving his sentence.

"He is a person who is convicted of espionage and is serving his sentence, and I don't have any update on his situation," Carney told reporters when asked whether Pollard's release was something that could be offered as an incentive to Israel.

U.S. Secretary of State John Kerry arrived in Israel on Monday in a last-ditch effort to secure a deal that would extend the deadlocked peace talks between Israel and the Palestinians.

Kerry met with Prime Minister Benjamin Netanyahu for more than three hours, immediately after landing. Following their talks, which ended at around 11:30 P.M., the secretary of state decided not to carry on to Ramallah, to meet with Abbas. The two will hold their talks on Tuesday morning, as originally scheduled.

Kerry and Netanyahu discussed a proposed deal to extend the talks until the end of 2014 and to ensure the Palestinians won't make unilateral moves at the United Nations. As part of the deal, Israel would release about 400 low-profile Palestinian prisoners.

In addition, Israel would release 26 high profile prisoners, 14 of whom are Israel Arabs. Israel would also put an unofficial freeze on most settlement construction outside of East Jerusalem for the next eight months. Israel would not formally freeze construction nor would it publish bans on construction as it did in 2009. The Israeli defense minister who is the authority in charge of the West Bank will halt government tenders, marketing of lands and planning. Only construction in small rural areas will be allowed. As a concession to Israel, the United States would release Pollard. An Israeli official close to negotiations told Haaretz that "there is a high probability that Pollard's release would be part of the deal being worked out right now but it is not certain."

Israel is categorically refusing to release such high-profile prisoners as West Bank Fatah chief Marwan Barghouti, or Ahmad Saadat, the general secretary of the Popular Front for the Liberation of Palestine. It has, however, expressed willingness to consider the release of senior Fatah operative Fuad Shobaki, who was behind the arms ship Karine A, which was intercepted by Israel in 2002.

If the deal is made, Israel has also pledged to keep the Allenby Bridge border crossing, which connects the West Bank to Jordan, for 24 hours a day and to ease entry into the West Bank.

Finally, the Israeli proposal also includes settling the status of some 5,000 families that have submitted family reunification requests in the West Bank and Gaza.

The assessments on Pollard come just a week after Washington denied an Army Radio report that the Obama administration was planning to free Pollard, who is serving a life sentence for spying on the United States for Israel, as a way of revving up stalled peace talks.

If peace talks are extended, the Americans will resume negotiations on a framework agreement, which they have been trying to formulate in recent months. The framework agreement is expected to include principles for a solution to the core issues and serve as a basis for negotiations.

Despite intense contacts over the last three months on these matters, the gaps between the sides on the substance of the document remain large.

At a PLO Executive Committee meeting on Monday, Abbas presented the Palestinian leadership with proposals he had received from Israel and the United States to extend the talks.