A senior Palestinian official said Israel's release of the last batch of Arab prisoners would not go ahead on Saturday as envisaged but he hoped there would be only a short delay.
Under a 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.
So far, 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.
"Today the prisoners will not be released... maybe in the coming days," Issa Qaraqae, the minister of prisoner affairs, told AFP.
"There are efforts to solve the crisis and I believe that in 24 hours everything will be clearer."
US State Department spokeswoman Jen Psaki confirmed that "no deal has been arrived at" for the release but added "we continue to work intensively with both sides".
Her comments came as US special envoy Martin Indyk met chief Palestinian negotiator Saeb Erakat and Israeli negotiator Yitzhak Molcho in Jerusalem, Palestinian officials said.
A Palestinian official speaking to AFP claimed that Israel was offering to free an additional 400 prisoners and reduce its presence in parts of the West Bank if the peace talks were extended.
Palestinian president Mahmud Abbas has not spelled out his terms for prolonging talks, saying only that he is not even prepared to discuss the issue until the prisoners are freed.
Meanwhile around 200 Palestinians demonstrated outside Ofer prison, an Israeli facility near the West Bank city of Ramallah where many Palestinians are held, demanding the prisoners' release.
The Palestinians want them to include Arab Israeli citizens, a demand hotly opposed by Prime Minister Benjamin Netanyahu's far-right coalition partners and hardliners within his own Likud party.
- 'Palestinians creating difficulties ' -
Signup to our newsletter and follow us on Facebook and Twitter!
The Israeli government has made no comment on the case but the cabinet is due to hold its weekly cabinet meeting on Sunday.
An Israeli official, speaking on condition of anonymity, told AFP that Israel was willing to free the prisoners but the Palestinians were placing obstacles in the way.
"Israel is interested in continuing the peace talks with the Palestinians and is prepared to carry out the fourth stage of the release of convicted terrorists," he said.
"But the Palestinians are creating difficulties with this when they say that the moment after the release of the prisoners they will stop the talks."
He did not elaborate.
Palestinian official Jibril Rajub told AFP on Friday that Israel informed the Palestinians that the last batch of prisoners would not be freed on Saturday.
Rajub warned that a delay would prompt the Palestinians to push an international diplomatic offensive against Israel.
"Not releasing the prisoners will mark the beginning of the efforts in the international community to challenge the legality of the occupation," he said.
A poll published Saturday by the Palestinian Centre for Public Opinion said 87 percent of those surveyed believed the Palestinian leadership should renew its UN efforts if the prisoners are not freed.
An overwhelming majority of Palestinians consider the prisoner release to be "the most crucial issue that must be treated in order to continue with the peace process".
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.
Israeli media say Netanyahu could give a green light to the 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.
On Wednesday, Psaki said "there are currently no plans to release Jonathan Pollard".