Israel's refusal to free a final batch of Arab prisoners Saturday is another obstacle to US efforts to broker peace, a senior official in Palestinian president Mahmud Abbas's Fatah party said.
Under the deal that relaunched peace talks last July, Israel agreed to release 104 Arabs held since before the 1993 Oslo peace accords in exchange for the Palestinians not pressing their statehood claims at the United Nations.
The prisoner release was also dependant on progress in the negotiations, of which there has so far been no sign.
Until now, Israel has freed 78 prisoners in three batches but ministers had warned they would block the final release, which had been anticipated for Saturday, if the Palestinians refused to extend the talks beyond their April 29 deadline.
Jibril Rajub, a member of Fatah's central committee, told AFP Friday "the Israeli government has informed us through the American mediator that it will not abide with its commitment to release the fourth batch of Palestinian prisoners scheduled for tomorrow, Saturday 29."
"Israel has refused to commit to the names that were agreed upon of prisoners held by Israel since before the 1993 Oslo agreements," Rajub said.
Israeli officials refused to comment, but cabinet ministers have baulked at including Israeli Arabs among the prisoners slated for release.
Rajub called the Israeli move a "slap in the face of the US administration and its efforts," and said the Palestinians would resume their international diplomatic offensive.
"Not releasing the prisoners will mark the beginning of the efforts in the international community to challenge the legality of the occupation," he said.
The talks have been teetering on the brink of collapse, with Washington fighting an uphill battle to get the two sides to agree to a framework for continued negotiations until the end of the year.
US Secretary of State John Kerry met Abbas in Amman on Wednesday in a bid to salvage the talks, with US special envoy Martin Indyk meeting the Palestinian leader in Ramallah a day later.
However, State Department spokeswoman Jen Psaki denied reports that negotiations had already collapsed.
"Any reports that suggest the talks are off are inaccurate," she told journalists covering a visit to Saudi Arabia by Kerry and President Barack Obama.
"Ambassador Indyk and the negotiating team remain closely engaged with both parties on the ground and will continue to work over the coming days to help them bridge the gaps and determine the path forward."
Meanwhile, EU diplomats are warning of a "significant risk" of regional upheaval and the "derailment of peace talks" due to increasing tension over the flashpoint Al-Aqsa mosque compound in Jerusalem, venerated by Jews and Muslims, AFP has learned.
"There remains a significant risk that incidents at this highly sensitive site, or perceived threats to the status quo, may spark extreme reactions locally as well as across the Arab and Muslim world, and have the potential to derail the peace negotiations," they quoted a joint report by heads of missions as saying.
According to Israeli law, Jews are not allowed to pray at the site and although non-Muslim visitors are permitted, recent high-profile visits by right-wing Israeli politicians and nearby archeological excavations have stoked tensions.
Israeli media say Netanyahu could give a green light to the prisoner release if the US frees Jonathan Pollard, who was arrested in Washington in 1985 and condemned to life imprisonment for spying on the United States for Israel.
Israel is not commenting on such reports, with Netanyahu spokesman Mark Regev saying only that in general the spy's fate is "often raised at high-level meetings between Israelis and Americans."
On Wednesday, Psaki said "there are currently no plans to release Jonathan Pollard."