Israel and the Palestinians sharpened their rhetoric as US Secretary of State John Kerry headed to the region Wednesday hoping to nudge the two sides towards a peace framework.

The latest US quest for a long-elusive peace deal has shown little sign of progress since Kerry revived direct talks in July, and this week leaders from both sides questioned the other's commitment to ending the decades-old conflict.

Palestinian president Mahmud Abbas warned Tuesday that his side would take "diplomatic and legal" action against Israel in order to halt the expansion of Jewish settlements on land the Palestinians want for their future state.

"We will not remain patient as the settlement cancer spreads, especially in (annexed Arab east) Jerusalem, and we will use our right as a UN observer state by taking political, diplomatic and legal action to stop it," he said.

"These actions... threaten to destroy the two-state solution."

A US State Department official said Israeli settlement expansion had created difficulties in the negotiations.

"The settlement activity that has been going on has created a lot of questions on the Palestinian side and in the international community about the intentions of the government of Israel," the official told AFP, asking to remain anonymous.

"It's both the building and the planning that creates a great deal of heartburn," the official added, reiterating the US position that the settlements are illegitimate.

Israeli Prime Minister Benjamin Netanyahu had earlier slammed the Palestinians for giving a hero's welcome to 26 prisoners released by Israel as part of the US-brokered talks, all of whom were convicted of killing Israeli civilians or soldiers.

"Murderers are not heroes," Netanyahu said on Tuesday after Abbas personally welcomed many of the prisoners at his Ramallah compound.

"There will be peace only when our security interests and settlement interests are ensured. There will be peace only when Israel will be able to defend itself on its own in the face of any threat," he said.

Kerry plans to meet with both leaders starting Thursday as he makes his 10th visit to Israel and the occupied West Bank since March.

The State Department official said Kerry aims to hammer out a framework to guide the sides through the tough final months of talks.

Israel has committed to releasing 104 prisoners in four batches as part of the talks, but the first two releases were accompanied by the announcement of new settlement construction, infuriating the Palestinians.

Netanyahu's government was expected to make a similar move after the latest release in order to assuage hardliners within the ruling coalition.

A Wednesday report in Israeli daily Maariv said Netanyahu was expected to make an announcement only next week, after Kerry has left the region.

Divisions over the Jordan Valley

The two sides are also split over the future of the Jordan Valley, with Israel saying it must maintain a troop presence along the border with Jordan, and the Palestinians insisting on a complete withdrawal from their future state.

Maariv said Wednesday Israel had rejected a proposed US security arrangement for the region, set forth during Kerry's last trip to the region in December, since it "could not ensure Israel's security."

According to Maariv, the US offer entailed a "limited Israeli presence on the Jordan River crossings for a number of years, while using technological means... instead of a military presence on the ground."

Israel wants its own long-term troop presence in the Jordan Valley under any final status agreement and opposes an international force.

Earlier this week, an Israeli ministerial committee gave initial approval to a bill annexing Jordan Valley settlements, a largely symbolic move expected to be shot down by the government.

Interior Minister Gideon Saar, who had supported the move, was set to tour the Jordan Valley on Thursday with the Land of Israel parliamentary caucus and inaugurate a new neighbourhood in the Gitit settlement. A spokesman for Saar told AFP the event had been planned well ahead of the annexation proposal.

Abbas too rejected the US plan presented in December and laid out "Palestinian red lines," including the refusal to recognise Israel as a Jewish state, a central demand of Netanyahu.

The Palestinians officially recognised Israel in the early 1990s, but fear accepting it as a Jewish state would endanger Israel's Arab minority and compromise the "right of return" for Palestinian refugees from past Arab-Israeli wars.