An unnamed source told Al Arabiya that a deal has been reached to extend peace talks, but all three parties have since downplayed the claim as premature, but the US did say "gaps were narrowing" in talks.

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According to the Al Arabiya report, the deal will see a number of Palestinian prisoners freed and a freeze on West Bank settlement construction. In return, the Palestinians will suspend their plans to join 15 international bodies.

To sweeten the deal for Israel, the source claimed the US has promised to release jailed US-Israeli spy Jonathan Pollard.

Prime Minister Benjamin Netanyahu with Palestinian President Abbas (Photo: Reuters)

State Department Spokeswomen Jen Psaki said the reports about the deal were "inaccurate" but noted that "our negotiating team and both parties remain in intensive negotiation. They had another meeting today. The gaps are narrowing but any speculations about an agreement are premature at this time."

A Palestinian source said talks were still in crisis and that no breakthrough had yet been made, despite US efforts. The source also noted that no deal securing the release of Palestinian prisoners in return for Pollard had yet been reached.

A senior Israeli official also said that "no breakthrough has been attained, the gaps are still large and disagreements still exist about the outline of reaching any agreements on extending talks."

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The US-brokered negotiations plunged into crisis two week ago after Israel, demanding a Palestinian commitment to continue talking after the end of the month, failed to carry out the promised release the final group of about two dozen senior Palestinian prisoners jailed from the time prior to the 1993 Oslo Accords.

Abbas responded by signing 15 treaties, including the Geneva Conventions on the conduct of war and occupations, on behalf of the State of Palestine, a defiant move that surprised Washington and angered Israel which claimed it breached the Palestinian initial promise to halt attempts to gain international recognition.

US Secretary of State John Kerry's attempted to salvage talks through a new prisoner release deal, which was said to include the release of US spy Jonathan Pollard and hundreds of Palestinian prisoners in return for talks' continuation. However, the Palestinan's bid to sign international treates killed the deal.

Pollard sentenced to life in prison on 1987 for spying for Israel. The Israeli government has repeatedly sought his release, but consecutive American administrations have rejected this option.

Earlier Thursday, Palestinian President Mahmoud Abbas claimed he was is ready to extend peace talks based on principles that would lead to the establishment of a Palestinian state with East Jerusalem as its capital.

Abbas told the London-based Al-Sharq Al-Awsat newspaper Thursday that his contested bid to join 15 international conventions and treaties embodied “one of the Palestinian people’s rights and Israel has nothing to do with that.”

On Thursday, in a new meeting between Palestinian and Israeli negotiators, attended by US special envoy Martin Indyk took place, a Palestinian source told Ma'an the parties were set to discuss the possibility of Israel releasing the fourth and final group of prisoners in a bid save relieve tensions between the two sides the hopes of resuming talks.

According to the source Ma'an spoke with, the Palestinian negotiators will then continue to separate the release of prisoners and the extension of peace talks beyond the agreed deadline of April 29.

A PA official further claimed that a release would be secured, and would talk place by the end of the month.

He further claimed that the Israeli negotiators suggested deporting 10 of the prisoners to Gaza, but the Palestinian side reportedly rejected the proposal flat out.

Acting on instructions from Abbas, the Ma'an report claimed, the Palestinian negotiators refused to discuss the proposal of deporting any prisoner to avoid repetition of previous experiences when prisoners were deported to Gaza or to foreign countries, according to the high-level Palestinian source.

Cutting ties

Israel announced on Wednesday a partial freeze in high-level contacts with the Palestinians in retaliation for their signing international conventions it contends they are not entitled to endorse before formal establishment of a state.

Underscoring the Palestinians' main concern - economic measures imposed by Israel - the Arab League said Arab states must meet their financial commitments to the Palestinian Authority "to provide an Arab financial safety net".

Under interim peace deals, Israel collects and transfers to the PA some $100 million a month in taxes on goods imported into the Palestinian territories. Israel has previously frozen the payments during times of heightened tensions.

Though Israel did not mention such measures on Wednesday, Palestinian Foreign Minister Riyad al-Malki said the Israeli government had "indicated" this morning it would withhold the revenues. He did not say how that message had been delivered.

"We are committed as Palestinians and Arabs to the negotiation process and the April 29 date and continuing to deal with the efforts that the American administration and John Kerry are making to find a way out of this crisis," he said.

Fatah central committee member Azzam al-Ahmad warned on Wednesday that Israeli sanctions will lead to the dismantling of the Palestinian Authority.

Al-Ahmad told Ma'an that the PA will not announce its dismantling outright, but stressed that Israeli actions will "lead to its collapse."

"The United States and Israel are jointly responsible for the collapse of the PA and its consequences," al-Ahmad said.

Yitzhak Benhorin, Elior Levy and Attila Shomfalvi contributed to this report.