A three-hour meeting between Israeli and Palestinian negotiators held without the presence of US envoy Martin Indyk on Sunday ended without clear signs of progress.
PLO sources told Ma'an that Israeli negotiator Tzipi Livni demanded that the Palestinians withdraw their applications for international treaties because the Israelis considered it a unilateral step.
The demand was rejected by the Palestinians who also refused to freeze the application -- "refusing to even consider it," said one source -- and adding that there was no turning back.
The Palestinian team, led by Saeb Erekat and Majed Farraj, demanded a complete freeze of settlements in Jerusalem and the West Bank, as an initial condition before discussing other issues.
The Palestinian team also demanded the release of a fourth group of veteran prisoners, without the option of exiling them, the sources said.
There was no immediate word from the Israeli side, which observes the seven-day Jewish holidays of Passover from sunset on Monday.
A Palestinian source close to the talks said a new meeting between the negotiators was set for Tuesday or Wednesday evening, with US envoy Martin Indyk due to attend.
Indyk, who presided over a meeting last Thursday, has since returned to Washington for consultations but is due to return on Tuesday, the source added.
The peace process has since last week suffered a new blow when Israel said it would freeze the transfer of duties it collects on the Palestinians' behalf, in retaliation for their diplomatic offensive against Israel at the United Nations.
The monthly $111 million in taxes collected by Israel represents about two-thirds of the Palestinian Authority's income.
Israel also reportedly plans to suspend its participation with the Palestinians in developing a gas field off the Gaza Strip and to put a cap on Palestinian deposits in its banks.
Foreign Minister Avigdor Lieberman, in a meeting with ambassadors posted in Tel Aviv on Sunday, blamed the Palestinians for the rapid deterioration in the peace process.
"We were very close to an agreement with the Palestinians, a complex transaction which was being examined by the (Israeli) cabinet, but at the last moment the Palestinians broke their promises and submitted applications" to join international treaties, he charged.
"We are ready to discuss and negotiate but we will not accept unilateral steps," Lieberman said.
A senior Palestinian official, Nabil Shaath, said the Palestinians still had "several options" and would not be deterred.
"Israel's sanctions will not deter Palestinian steps to join international treaties and organizations," he said, quoted by the Palestinian news agency WAFA.
The Israeli reprisals have sparked concern in Washington.
"We've seen these press reports, but we have not seen an official public announcement by the government of Israel," State Department spokeswoman Jen Psaki told reporters on Friday.
"That said, we would regard such a development as unfortunate.
"We believe that the regular transfer of the Palestinian Authority's tax revenues and economic cooperation between Israel and the Palestinian Authority has been beneficial and is important to the well-being of the Palestinian economy."
The talks hit an impasse two weeks ago when Israel refused to release as agreed a group of Palestinian prisoners and the Palestinians retaliated by seeking accession to several international treaties.
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