JERUSALEM: Israeli Prime Minister Benjamin Netanyahu threatened the Palestinians with unilateral reprisals on Sunday, as the two sides met for last-ditch talks with a US envoy on salvaging the peace process.
Israel will retaliate if the Palestinians go ahead with applications to adhere to 15 international treaties, the rightwing premier said.
"These will only make a peace agreement more distant," he said of the applications which the Palestinians submitted last Tuesday.
"Any unilateral moves they take will be answered by unilateral moves at our end," he told a weekly cabinet meeting.
Israeli and Palestinian negotiators went into talks with US envoy Martin Indyk in the afternoon, a Palestinian source said.
He stressed there would be no change in the Palestinian position if Israel continued to refuse to free Arab prisoners.
The crisis erupted after Israel last week refused to release the fourth and last batch of Palestinian prisoners in line with an agreement struck with the Palestinians and the United States.
In a tit-for-tat move, Palestinian president Mahmud Abbas signed the applications, triggering Israel's wrath.
Israel says Abbas's move was a clear breach of the commitments the Palestinians gave when the talks were relaunched last July to pursue no other avenues for recognition of their promised state.
US Secretary of State John Kerry, the driving force behind the talks, warned on Friday that there were "limits" to the time and energy that Washington could devote to the peace process.
But Abbas and Netanyahu have both ignored Kerry's pleas to step back from the brink, and Israel's prime minister asked for a range of retaliatory options to be drawn up.
The Israeli parliament is due to meet to discuss the crisis on Monday.
"The Palestinians have much to lose from a unilateral move. They will get a state only through direct negotiations and not through empty declarations or unilateral moves," Netanyahu said on Sunday.
"We are prepared to continue talks, but not at any price."
Israel's chief negotiator Tzipi Livni suggested that Washington scale down its "intensive" involvement, saying direct talks between Abbas and Netanyahu were needed.
"We need bilateral meetings between us, including between the prime minister and Abu Mazen (Abbas)," she said on television on Saturday.
A Palestinian source said Livni had already made the suggestion at a meeting two days earlier with her Palestinian counterpart Saeb Erakat, but that no such encounter is on the agenda.
Netanyahu angrily noted that the Palestinian applications to the international institutions were filed before planned talks aimed at extending negotiations beyond their April 29 deadline.
But Palestinian official Yasser Abed Rabbo said Israel was responsible for the crisis and "wants to extend the negotiations forever."
"Israel always implements unilateral steps," he told Voice of Palestine radio.
Israel's hardline Foreign Minister Avigdor Lieberman called for early elections in case the prisoners are released.
"The government has three choices: free the prisoners even if the Palestinians have not kept their promises, form a new governing coalition or organise elections. The last option is preferable," he said at a conference in New York, quoted on Israeli radio.
Officials from Netanyahu down have been cautious not to specify the exact nature of punitive measures Israel might take against the Palestinians.
But Haaretz newspaper said Netanyahu and Defence Minister Moshe Yaalon have asked the military administration in the West Bank to draw up a list of possible punitive measures.
Other reports said Israel could prevent Wataniya Palestine Telecom from laying down cellphone infrastructure in the Hamas-ruled Gaza Strip, and halt Palestinians from building in parts of the West Bank.
Economy Minister Naftali Bennett, an outspoken hardliner who opposes a Palestinian state, said certain Palestinian leaders should be tried by the International Criminal Court for war crimes.
Shurat Hadin, a non-governmental organisation that backs the families of Israelis killed in Palestinian attacks, said it would petition the ICC.
Human Rights Watch, meanwhile, said Washington should back the Palestinian bid to join international treaties, a step which "could help create a better environment for peace negotiations".