The nine-month deadline for US-sponsored peace talks between Israel and the Palestinian Authority has passed with nothing to show for the period of intense American diplomacy, as the US secretary of state, John Kerry, apologised for declaring that Israel risked becoming an "apartheid state".

The two sides were possibly further apart on Tuesday than when talks were launched last July – negotiations which Kerry had hoped initially would lead to a settlement of Israel-Palestine conflict by the middle of this year.

Kerry had faced fierce criticism from some congressmen and pro-Israel groups for his comments, made at a closed door meeting of the Trilateral Commission in Washington on Friday, and revealed by the Daily Beast website on Sunday.

In a statement issued by the state department, Kerry said: "If I could rewind the tape, I would have chosen a different word to describe my firm belief that the only way in the long term to have a Jewish state and two nations and two peoples living side by side in peace and security is through a two-state solution."

Officials predicted that the end of the talks would prompt the US to withdraw from efforts to mediate, as both sides attempted to "minimise damage".

"Kerry has other pressing issues he needs to deal with, including the Ukraine," said one Israeli official. "I would not expect to see any diplomatic movement for months."

The deadline for peace talks passed as some ministers in Netanyahu's rightwing government called for Israel to set its own borders and annex areas of the West Bank under full Israeli control. The economy minister, Naftali Bennett, said: "We will be gradually attempting to apply Israeli law on Israeli-controlled areas."

The chief Palestinian negotiator, Saeb Erekat, accused Israel of "never giving the negotiations a chance to succeed" and "used every possible tool in order to consolidate its apartheid regime".

In a statement issued by the PLO, Erekat said: "Everything Israel did during the past nine months [was] aimed at sabotaging Palestinian and international efforts to achieve the two-state solution. To build settlements in occupied land, kill Palestinians and demolish hundreds of Palestinian homes is certainly not the behaviour of a government that wants to end occupation but of a government that wants to turn occupation into annexation."

It was Kerry's statement, however, which was a metaphor for a US diplomatic effort that has been imploding in slow-motion for weeks. In the midst of a renewed trading of blame, only Kerry appeared to have anything he regretted.

Some critics had accused Kerry and the US of becoming a party to negotiations, rather than guiding them. But in his statement Kerry hit back at what he described against "partisan political" attacks against him, while stating in retrospect that he would have chosen a different word.

Kerry said his remarks were only an expression of his firm belief that a two-state resolution is the only viable way to end the long-running conflict and insisted on his history of support for Israel over the past 30 years.

"I will not allow my commitment to Israel to be questioned by anyone, particularly for partisan, political purposes, so I want to be crystal clear about what I believe and what I don't believe," Kerry said after members of Congress and pro-Israel groups criticised him, with some demanding his resignation or at least an apology."First, Israel is a vibrant democracy and I do not believe, nor have I ever stated, publicly or privately, that Israel is an apartheid state or that it intends to become one," he said.

"Second, I have been around long enough to also know the power of words to create a misimpression, even when unintentional, and if I could rewind the tape, I would have chosen a different word to describe my firm belief that the only way in the long term to have a Jewish state and two nations and two peoples living side by side in peace and security is through a two-state solution," Kerry said.

While few analysts believe that a third Intifada is likely for now, tensions seem set to increase in other ways .

On the Palestinian side, at least, the next moves are mapped out including seeking recognition at a further group of international bodies, and pushing efforts for a national unity government supported by Hamas within a month or so followed by elections.

The composition of that government, and the degree of Hamas's involvement, will define any potential conflict with western governments and their financial support for the Palestinian Authority, not least because Hamas does not recognise the right of Israel to exist.

For its part Israel has already threatened the PA with punitive sanctions that are likely to be widened. One target that has been mooted is the tax and customs revenues that Israel collects on the authority's behalf. Because the PA owes Israel money for electricity supply, that amount may be deducted.