Washington on Wednesday denounced an order from Israeli Prime Minister Benjamin Netanyahu to limit his cabinet's contacts with their Palestinian counterparts as "unfortunate," Agence France-Presse reported.
"We are certainly aware of the announcement. We regard it as unfortunate," AFP quoted State Department spokeswoman Jen Psaki as saying, as her boss John Kerry met with Israeli Foreign Minister Avigdor Lieberman, Al Arabiya reported.
Netanyahu ordered ministers to limit contact with their Palestinian counterparts in response to "the Palestinian violation of their commitments under peace talks," an Israeli official told AFP.
But Psaki shot back: "We believe that cooperation between Israel and the Palestinian Authority has provided benefits to both sides."
"We continue to urge both sides to take steps that contribute to a conducive environment for peace."
Secretary of State Kerry met with Lieberman at the State Department as on the ground U.S. negotiators seek to rescue the fragile Israeli-Palestinian peace talks which ran into a stalemate last week.
"Obviously we are working hard to try to find a way forward," Kerry said at the start of his talks with Lieberman.
"Both parties indicate they would like to find a way to go forward in the talks. We obviously want to see that happen, we think it's important for them."
The two men met for an hour, Lieberman's office said in a statement, and discussed other issues including Iran and Syria.
The meeting came a day after Kerry laid the blame for the teetering Mideast peace talks at Israel's door for announcing a major settlement expansion as Kerry prepared to return to the region for more negotiations.
"And, poof, that was sort of the moment" when the talks derailed, the top U.S. diplomat told lawmakers Tuesday.
Psaki again defended Kerry on Wednesday saying that he was not engaged in a "blame game" as "he doesn't believe... that one side deserves blame over another because they've both taken unhelpful steps."
Lieberman said he believed Israel had already shown its good faith "in the midst of a very crucial process."
"I think that you and us have the same desire to achieve a comprehensive solution to achieve (a) final status agreement," the Israeli minister said.
"We're ready to sacrifice a lot for this goal," Lieberman insisted, saying Israel was not just paying "lip service" but had already given up territory three times the size of its country, referring to the Sinai peninsula, the West Bank and Gaza Strip.
"We are looking for the same positive approach from the other side. We think that any unilateral steps, they only can undermine the other efforts."
The Palestinians have announced they intend to seek membership of 15 U.N. organizations and treaties as an independent state.
Meanwhile, the Arab League on Wednesday blamed Israel for "the dangerous stalemate" in U.S.-brokered peace talks scheduled to end on April 29.
Arab foreign ministers held an emergency meeting with Palestinian leader Mahmud Abbas after Israel backtracked on releasing a final batch of Palestinian prisoners and reissued tenders for 708 settler homes in east Jerusalem.
Arab League chief Nabil al-Arabi accused the Israelis of dragging their feet in the talks, telling reporters: "Gaining time is a strategic objective for Israel."
Israel says its release of each batch of prisoners was conditional on progress in negotiations.
In response, the Palestinians infuriated the Israelis when they sought to gain wider international recognition by attempting to attain a full-fledged U.N. membership, and join 15 other international organizations. This made Israel consider imposing more sanctions on the Palestinians.