The United States has backtracked on an announcement that Palestinian offices in Washington, DC would be closed, following Palestinian threats to sever all communication with the Americans as they work on a new Middle East peace plan.

The US order last week to close the Palestine Liberation Organisation (PLO) office was in response to efforts by Palestinians to indict Israeli officials at the international court, over illegal settlement expansion and violent crimes.

However, the US State Department announced the reversal on Friday, saying the PLO office in the US capital would be allowed to operate for at least the next 90 days.

The US had "advised the PLO Office to limit its activities to those related to achieving a lasting, comprehensive peace between the Israelis and Palestinians", State Department spokesman Edgar Vasquez told reporters.

Palestinian Authority President Mahmoud Abbas said at the United Nations in September that the Palestinians "called on the International Criminal Court [ICC] to open an investigation and to prosecute Israeli officials for their involvement in settlement activities and aggressions against our people".

Illegal Israeli settlements in the Palestinian territories have expanded exponentially in recent years. And, for the first time in two decades, a new Israeli settlement is being built in the West Bank.

Since 1967, Israel's government has transferred between 600,000 and 750,000 Israeli citizens into the occupied territories.

The office closure announcement ignited an angry response from the Palestinians who threatened to cut all communication with US officials, thereby thwarting US President Donald Trump's effort to broker Middle East peace.

Trump's adviser, Jared Kushner, has been working on a peace plan to present to both sides in the coming months.

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"We, therefore, are optimistic that at the end of this 90-day period, the political process may be sufficiently advanced that the president will be in a position to allow the PLO office to resume full operations," Vasquez said.

A legal requirement enacted in 2015 said the US cannot allow the Palestinians to have a Washington office if they support investigations of Israeli nationals for alleged crimes in Palestine.

While Israel is not a party to the Rome Statute - the treaty of the ICC to which all members are bound to - its nationals could be tried by The Hague-based court for crimes committed on Palestinian territory.