By Ari Rabinovitch
JERUSALEM (Reuters) - A key partner in Prime Minister Benjamin Netanyahu's coalition threatened on Friday to pull out of the government if a deal to salvage peace talks with the Palestinians includes the release of Israeli-Arab prisoners.
The ultimatum by Economy Minister Naftali Bennett, who heads the ultra-nationalist Jewish Home party, further complicates U.S. efforts to keep fraught negotiations from collapsing.
Bennett's party has 12 of the 68 seats in ruling coalition, and should it quit, Netanyahu would have to find new allies to maintain a working majority in the 120-seat parliament.
There was no immediate comment from Netanyahu's office, but senior members of his right-wing Likud party dismissed Bennett's announcement as an "empty threat".
Bennett says the Palestinians should not have any say in how Israel deals with its own citizens. "The emerging deal, if it includes the release of murderers with Israeli citizenship, damages Israeli sovereignty," Bennett said in a statement.
"If the proposal passes, the Jewish Home will quit the government," he said.
As part of a deal to revive moribund peace talks last July, the Israelis agreed to release 104 Palestinian prisoners in four batches. However, it failed to set free the final group at the end of last month, triggering a crisis in the negotiations.
ROW OVER PRISONERS
The Palestinians said they were assured by Washington that a handful of Arab prisoners with Israeli citizenship would be included in the release program, but Israeli officials have said they never made any such commitment.
The United States is trying to piece together a deal between the two sides to allow talks to continue beyond an initial April deadline, and Palestinian negotiators say the release of long-serving Arab Israelis must be part of the accord.
Following Israel's failure to free the final batch of prisoners, Palestinian President Mahmoud Abbas responded by signing 15 international treaties, including the Geneva Conventions on the conduct of war and occupations.
Israel said Abbas was reneging on a commitment not to take unilateral steps aimed at boosting the Palestinians' quest for statehood during the July-April talks window.
In response, Netanyahu has imposed economic sanctions against the Palestinians and limited contacts with their leadership even as negotiators from both sides continued to meet to try to break the logjam.
Washington said on Thursday the two sides were making progress but dismissed suggestions an agreement to extend the talks had been struck.
Bennett said earlier this week that the talks were dead and called on Netanyahu to annex major Jewish settlement blocs built on land Israel seized in 1967.
Deemed illegal under international law, the settlements are on land the Palestinians want for their future state.
(Editing by Crispian Balmer and Tom Heneghan)