JERUSALEM (AFP) - Israel has called off the planned release of 26 Palestinian prisoners, placing already embattled peace talks in further jeopardy after both sides took steps Washington called "unhelpful".

Israel's chief negotiator, Justice Minister Tzipi Livni, told her Palestinian counterparts on Thursday the planned releases cannot go ahead because the Palestinians had formally requested accession to several international treaties, a source close to the talks told AFP.

The Israelis saw this as a breach of conditions agreed for a resumption of US-brokered peace talks last July, the source said.

As news of the cancellation broke, Palestinians in Gaza fired four rockets into southern Israel, prompting retaliatory air strikes early Friday by Israel.

No casualties were reported on either side.

A frustrated US Secretary of State John Kerry on Thursday demanded that recalcitrant Israeli and Palestinian politicians demonstrate leadership in the peace process.

The talks hit a new impasse when Israel failed to free the prisoners as expected at the weekend.

In response, the Palestinians formally requested accession to several international treaties, including the Fourth Geneva Convention, which provides the legal basis for Palestinian opposition to Israeli settlements in the occupied territories.

The source said Livni had told the Palestinian negotiators that her government had been seeking to expedite the releases at the moment the Palestinians submitted their accession request to UN bodies.

Ms Livni urged them to cancel the applications and return to talks, the source said.

The Palestinians, however, insisted that the basis for future talks must change.

"Israel has a habit of evading agreements and conventions it has signed," Yasser Abed Rabbo, general secretary of the PLO executive committee, told AFP.

"That is why conditions for future negotiations must change radically," he added, without elaborating.

White House spokesman Jay Carney said Israel's decision had put further strains on peace efforts.

"The decision by the Israelis to delay the release of the fourth tranche of prisoners creates challenges," he said in Washington.

Ms Carney said, however, that Mr Kerry and the US negotiating team would not be deterred in trying to keep the peace effort alive despite recent setbacks.

Late Thursday, four rockets fired from the Hamas-ruled Gaza Strip slammed into southern Israel, a military spokesman told AFP.

He said there were no casualties and army radio said all the rockets fell in open countryside.

Palestinian security officials and witnesses early Friday reported Israeli air strikes on six facilities of the Hamas military wing around Gaza city.

No casualties were reported.

The Israeli military confirmed four air strikes and linked them to cross-border small arms fire from Gaza the day before, as well as the latest rocket fire.

US officials said that Kerry, who has pursued more than a year of intensive shuttle diplomacy, spoke by phone to Israeli Prime Minister Benjamin Netanyahu on Thursday afternoon, and to Palestinian president Mahmud Abbas later, but they gave no details.

His efforts appeared to be on the brink of collapse this week after Israel announced a fresh wave of settlement tenders and the Palestinians resumed international recognition moves.

Settlements and international recognition are two of the touchiest issues dividing the two sides.

Israeli settlements in the West Bank and east Jerusalem are a source of much bitterness for Palestinians, who want these areas for their long-promised state.

Palestinian moves to join international treaties and organisations are meanwhile seen as a bid to unilaterally further their statehood claim.

Washington described the latest moves as "unhelpful, unilateral actions", but insisted diplomacy still had a chance.

Mr Kerry threw down the gauntlet, telling both sides it was time for compromise at what he called a "critical moment" in the peace process.

"You can facilitate, you can push, you can nudge, but "The leaders have to lead, and they have to be able to see a moment when it's there."