Israel and the Palestinians appeared determined Monday to seal their divorce as Washington's deadline for reaching a Mideast peace deal was to expire, leaving hopes for a breakthrough in tatters.

After more than a year of intensive shuttle diplomacy by US Secretary of State John Kerry with the initial aim of brokering a deal by April 29, Washington's patience appeared to be growing thin as both sides moved to distance themselves from the crisis-hit talks.

Speaking to a closed meeting of international figures, Kerry reportedly said that if Israel didn't seize the opportunity to make peace soon, it risked becoming an "apartheid state," a US news website reported.

"A two-state solution will be clearly underscored as the only real alternative. Because a unitary state winds up either being an apartheid state with second class citizens -- or it ends up being a state that destroys the capacity of Israel to be a Jewish state," he said, according to a transcript obtained by The Daily Beast and published late Sunday.

Apartheid is the term for the system of racial segregation put in place by the white supremacist regime in South Africa from 1948 until the country's first all-race elections in 1994.

Israeli Transport Minister Israel Katz, a member of Prime Minister Benjamin Netanyahu's rightwing Likud party, expressed outrage at Kerry's reported comments.

"Kerry, shame on you. There are some words you cannot use," he wrote on his Facebook page.

"On this day of national commemoration of the Holocaust, we have the US secretary of state describing us as an apartheid state -- us, the state which is subjected to threats of destruction."

While both Kerry and President Barack Obama have previously refrained from using the term when speaking of the Israeli-Palestinian conflict, former president Jimmy Carter titled a 2006 book that he wrote on the subject "Palestine: Peace Not Apartheid".

- 'Confrontation and hiatus' -

Kerry insisted that although the peace process was at a point of "confrontation and hiatus," it was not dead -- yet.

But both the Palestinians and the Israelis appear to have drawn their own conclusions about the life expectancy of the US-led negotiations, which have made no visible progress since they began nine months ago.

Last week, Palestinian leaders in the West Bank and the Hamas-run Gaza Strip announced a surprise unity deal aimed at ending years of occasionally violent rivalry.

Israel denounced the deal as a deathblow to peace hopes and said it would not negotiate with any government backed by the Islamist movement. Washington called the deal "unhelpful".

Under the agreement, the Palestine Liberation Organisation and Hamas will work to establish a new unity government of political independents which would be headed by president Mahmud Abbas, whose Fatah party dominates the PLO.

It would recognise Israel, renounce violence and abide by existing agreements, in line with the key principles set out by the Mideast peacemaking Quartet.

But Netanyahu has ruled out any negotiation with the new government unless Hamas accepts Israel, forcing Abbas to chose between the two.

Palestinian chief negotiator Saeb Erakat accused Israel of using reconciliation as a weapon during the talks.

"Every day they were asking: what would you do with Gaza?" he told Voice of Palestine.

"So if peace cannot be achieved without Gaza, and it cannot be achieved with Gaza, then there is an Israeli aim here, and that is not achieving peace."

Meanwhile, in remarks in Gaza on Monday, Mussa Abu Marzuk, a top Cairo-based Hamas leader, reaffirmed that the unity government would "not be political."

He said its mandate would be primarily to prepare for elections within six months, restructuring the security services and overseeing the reconstruction of the battered Gaza Strip.

Tzahi HaNegbi, an MP close to Netanyahu, told army radio Israel should "wait to understand the meaning" of the Palestinian unity deal.

"Israel must act intelligently and with restraint, and not play into the Palestinians' hands by helping them out of the trap into which they have fallen," he said.

Israel and Washington are reportedly at odds over the proposed new Palestinian government, with US officials waiting to see whether it will embrace the Quartet's principles.