Palestinian Authority President Mahmoud Abbas said Thursday that he was willing to continue peace talks with Israel past the current April 29 deadline.

In an interview with the London-based Arabic daily A-Sharq al-Awsat, the Palestinian leader said the extension of the talks must be aimed at the establishment of a Palestinian state with its capital in East Jerusalem.

A senior member of the PLO, however, denied the reports that Abbas agreed to extend talks with Israel. Wasel Abu-Youssef was quoted by Maariv saying that the Palestinian leadership had not yet met to deliberate on the matter and that there were conditions posed to the Israelis on which an extension of talks depended.

An unnamed Israeli political source told Israel Radio that Jerusalem would release the fourth wave of Palestinian prisoners it refused to set free last week  on condition that the PA “freezes the situation” and commits to halt its drive for recognition by international organizations.

Abbas’s statements came as the Arab League on Wednesday gave its own approval to the extension of talks in a meeting of Arab foreign ministers in Cairo, providing Abbas with diplomatic backing for the move.

Abbas also appeared to attempt to play down the significance of the Palestinian Authority’s application last month to 15 international treaties, saying such applications were a basic right of the Palestinian people and have nothing to do with Israel.

Palestinian leaders have threatened Israel with unilateral action if talks failed to produce results, saying the treaty applications were a first step in attempts to gain recognition of Palestinian statehood outside of bilateral negotiations.

The Palestinian move led Israel on Wednesday to cut most official non-security contacts with the PA and raised calls from right-wing Knesset leaders to formally annex Israel’s West Bank settlements.

On Wednesday, a senior Fatah official warned that Israeli punitive measures against the PA will lead to its collapse.

Azzam Al-Ahmad said Israel and the US together would be responsible if the PA is toppled, and for the ramifications of such an eventuality, reported Israel Radio.

A senior Israeli official said that Israel was seriously considering a drastic cut to the amount of tax money it collects and transfers to the PA in the wake of the latter’s application to various international frameworks.

“We’re thinking of deducting from the PA’s budget the money they spend on terrorists and their families,” the senior official told The Times of Israel. “This step would be less dramatic than cutting entirely our monthly tax payments to the PA,” he said.

Israel considers PA payments to Palestinian inmates in Israeli prisons and their families to be “funding terrorism,” the senior official said. In 2012, the PA Ministry of Prisoner Affairs transferred $75.5 million to terrorists imprisoned by Israel and their families, out of a total budget of $3.1 billion, according to Israeli government figures.

Prime Minister Benjamin Netanyahu has not yet decided to go ahead with the move, the official said, but as he considers various options to respond to the Palestinians’ unilateral steps, a partial freeze of the transfer of funds “could well be implemented.”

The PA’s deputy prime minister, Mohammad Mustafa, warned that punitive Israeli measures would only lead to a deterioration of the current situation. He said the Palestinians were working to prevent Israel from freezing the PA’s tax money.

Earlier on Wednesday, Israeli sources said that government officials had been ordered not to meet with their Palestinian counterparts. The order did not include contact between the Defense Ministry and the PA — which would have hindered security cooperation in the West Bank — or communications related to peace talks.