The US secretary of state has insisted it is completely premature to write off the Israeli-Palestinian peace talks.
John Kerry said a lot of possibilities were in play, even though a dispute threatens to derail his efforts to extend negotiations beyond this month.
He made the comments after cancelling a visit to the West Bank on Wednesday.
Hours earlier, Palestinian Authority President Mahmoud Abbas said he would seek further UN recognition unless a prisoner release by Israel went ahead.
At a televised meeting in the West Bank, Mr Abbas signed applications by the "State of Palestine" to join 15 UN treaties and conventions, beginning with the Fourth Geneva Convention.
Leading members of his Fatah movement and the Palestine Liberation Organisation (PLO) voted unanimously in support of the move, which the Israeli and the US governments have argued is deeply mistaken.
Israel has meanwhile reissued tenders for 708 homes in the Jewish settlement of Gilo in East Jerusalem, the Israeli pressure group Peace Now says.
Israel captured East Jerusalem from Jordan in the 1967 Middle East war and formally annexed the area in 1980. Settlements built there and elsewhere in the occupied West Bank are considered illegal under international law, though Israel disputes this.
'Huge decisions'
Speaking to reporters in Brussels shortly after the announcement by President Abbas, Mr Kerry called on both sides to show restraint.
"It is completely premature tonight to draw... any final judgement about today's events and where things are. This is a moment to be really clear-eyed and sober about this process," he said.
"It is difficult, it is emotional, it requires huge decisions, some of them with great political difficulty, all of which need to come together simultaneously."
But he added: "There are a lot of different possibilities in play. All I can tell you is that we are continuing, even now as I am standing up here speaking, to be engaged with both parties to find the best way forward."
Mr Kerry has for weeks been trying to persuade both sides to continue the direct negotiations beyond 29 April, but his efforts have been jeopardised by a disagreement over the release of a fourth group of 26 long-term Palestinian prisoners from Israeli jails.
Mr Abbas says they must be freed, in keeping with a promise made by Israel before the negotiations resumed in July after a three-year hiatus.
But Israeli officials say they are reluctant to proceed unless the Palestinians commit to extending the talks, and stress that the releases have always been tied to their progress.
The previous three releases were deeply unpopular with the Israeli public because many of the prisoners were convicted of murdering Israelis.
The possible release of Jonathan Pollard reportedly emerged as an incentive for Israeli co-operation Earlier on Tuesday, the US secretary of state held talks with Israeli Prime Minister Benjamin Netanyahu and chief Palestinian negotiator Saeb Erekat amid reports that they were close to finalising an agreement that would extend the talks until 2015.
Sources cited by US and Israeli media said a deal was emerging in which the fourth batch of Palestinian prisoners would be freed in return for the release of Jonathan Pollard, an American who was jailed for life in 1987 for spying for Israel.
The White House confirmed that talks were "under way" over the convicted spy but said no decision had been made by President Obama.
"Jonathan Pollard was convicted of espionage and he is serving his sentence," White House spokesman Jay Carney said on Tuesday.
"There are obviously a lot of things happening in that arena and I am not going to get ahead of discussions that are under way," Mr Carney added.
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