Kerry's arrival in the region comes as a growing number of voices on both sides warned that the negotiations, which resumed in late July following months of shuttle diplomacy by Kerry himself, were on the brink of collapse.
In a symbolic gesture, Kerry's first stop on landing last evening was to visit the Tel Aviv square where the late prime minister Yitzhak Rabin was gunned down 18 years ago by a rightwing Israeli opposed to the peace talks.
But just hours later, following a stormy meeting between negotiators from both sides in Jerusalem, a senior Palestinian official said his delegation would not be able to continue talking in light of latest Israeli moves to advance settlement construction.
"The Palestinian-Israeli negotiations broke down during the session on Tuesday night," the official told AFP, speaking on condition of anonymity.
Over the past week, Israel has announced plans to move forward with thousands of new settler homes, a large percentage of them in annexed Arab east Jerusalem.
The settlement issue, which has sent tensions soaring, was expected to come up in Kerry's talks with Netanyahu in Jerusalem.
Immediately after the meeting, the US diplomat was to head to the southern West Bank city of Bethlehem for talks at 1100 GMT with Palestinian president Mahmud Abbas, who was also expected to drive home the problem of settlements.
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