The comments were reported by the New York Times and quoted a senior source within the prime minister's office who preferred to remain unnamed.
Speaking in a hearing before the Senate Foreign Relations Committee on Tuesday, Kerry was asked about stalemate in US-brokered peace talks, and said: "The prisoners were not released by Israel on the day they were supposed to be released and then another day passed and another day – and then 700 units were approved in Jerusalem and then poof…".
State Department spokeswoman Jen Psaki attempted to play down what is already being called the 'poof speech', saying via Twitter that Kerry "was crystal clear today that both sides have taken unhelpful steps and at no point has he engaged in a blame game."
The comments caused a furor, and on Wednesday a senior source within Prime Minister Netanyahu's office spoke with the New York Times and said Kerry's comments “will both hurt the negotiations and harden Palestinian positions.”
Under the terms of renewed talks, Israel had promised to release 104 long-held Palestinian prisoners in four groups, while the Palestinians said they would suspend a campaign to sign up the "state of Palestine" for various UN agencies.
But as the talks stalled last month, Israel failed to release the fourth group of prisoners on time, and the Palestinians then signed letters of accession for 15 international conventions.
The anonymous attempted to shift the onus onto the Palestinians: “Secretary Kerry,” the official was quoted by the New York Times as saying, “knows that it was the Palestinians who said ‘no’ to continued direct talks with Israel in November; who said ‘no’ to his proposed framework for final status talks; who said ‘no’ to even discussing recognition of Israel as the nation-state of the Jewish people; who said ‘no’ to a meeting with Kerry himself; and who said ‘no’ to an extension of the talks,” .
The source also reiterated the government's position regarding talks, according to which Israel was willing to enter negotiations without pre-conditions, including the commitment to halt settlement construction during the talks duration.
“At the same time, in the understandings reached prior to the talks, Israel did not commit to any limitation on construction. Therefore, the Palestinian claim that building in Jerusalem, Israel’s capital, was a violation of the understandings is contrary to the facts. Both the American negotiating team and the Palestinians know full well that Israel made no such commitment.”
The New York Times report also quoted a Palestinian official close to talks, who also spoke on condition of anonymity, as claiming Israel was trying to “undermine the American role in the peace process.”
- Netanyahu orders cutback in contacts with Palestinian Authority
- Is the US taking a step back from peace talks?
- Kerry says Israel responsible for peace talks crisis
Earlier Wednesday Netanyahu ordered Israeli officials and offices to halt all high-level contacts with the Palestinians on non-security related issues, but exempted his chief peace negotiator from the ban,.
One Israeli official called Netanyahu's order a response to "the Palestinians' grave violation of their commitments in the framework of the peace talks" - an apparent reference to their signing of 15 international conventions last week.
Another official said Israeli cabinet members, directors-general of government ministries and other senior bureaucrats would no longer be allowed to meet their counterparts in the Palestinian Authority, which exercises limited self-rule in the West Bank.
Justice Minister Tzipi Livni, who heads Israel's negotiating team in the troubled US-brokered peace process, and defense and security officials could continue to engage with the Palestinians, the officials said.
Palestinian Labor Minister Ahmad Majdalani, however, downplayed the significance of this decision, noting that "90% of our daily business is dealing with the Israeli military."
"In fact, there are no meetings between Israeli and Palestinian ministers, apart from finance ministers," Majdalani told AFP.
"This decision undermines all international efforts ... to revive the negotiations, to proceed with a constructive solution to the challenges facing the peace process," said PA spokesman Ehab Bseiso.
Israeli and Palestinian officials cooperate on civilian issues such as the environment, water and energy, but Bseiso said this usually does not entail face-to-face meetings.
The PA's main concern focuses on possible economic curbs.
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.
Yitzhak Benhorin, Reuters, AFP contributed to this report