Israeli Prime Minister Benjamin Netanyahu ordered ministers yesterday to limit all but diplomatic and security contact with their Palestinian counterparts.

An Israeli spokesman said the gag was “in response to the Palestinian violation of commitments under peace talks,” but even US Secretary of State John Kerry told congress that it was Israel’s delay of a plan to release Palestinian prisoners, coupled with new settlement announcements, that had sabotaged the talks.

“In the afternoon … 700 settlement units were announced in Jerusalem and — poof — that was sort of the moment,” he told the Senate foreign relations committee.

Israel refused to release a final batch of long-serving Palestinian prisoners as agreed under the talks, and at the same time approved more than 700 new illegal settler homes in Arab east Jerusalem.

The Palestinians responded to the prisoner issue by applying to sign 15 international agreements, which sparked the latest Israeli move.

A Palestinian Authority spokesman said Israeli-Palestinian ministerial meetings were rare but voiced concern that the gag could be followed by economic sanctions.

Israel collects and transfers to the authority £60 million a month in taxes on goods imported into Palestinian territories.

Without this money, the authority would have a difficult time paying salaries to its tens of thousands of employees.

Meanwhile, the Palestinian UN envoy called for a boycott of products from illegal settlements.

Riyad Mansour warned that if the Israelis weren’t prepared to negotiate “in good faith,” Palestine will be forced “to move into the next stage of holding them accountable for illegal behaviour in all fronts, politically, diplomatically and legally.”

Mr Mansour told the Committee on the Exercise of the Inalienable Rights of the Palestinian People that Palestinians can no longer accept being “strangers or foreigners in our homeland.”

He said: “This is the time for all of you — not only governments … to complete the exercise by helping the state of Palestine to become independent.”

Mansour said most countries had recognised the state of Palestine, but stressed “that is not sufficient.”

“You have to get ready to start adopting laws not to accept or allow anything that comes from settlements, because what comes from an illegal thing is illegal,” he said.