After a day of dramatic diplomacy and a late afternoon helicopter dash to the Palestinian Authority in Ramallah, Kerry announced a hard-won breakthrough to get the two sides back to the negotiating table.
Both Israel and the Palestinian presidency welcomed the development, but the Islamist Hamas movement which runs the Gaza Strip rejected a return to talks.
Kerry's announcement yesterday came after he spent four days consulting the Israeli and Palestinian leadership from his base in an Amman hotel.
"This is a significant and welcome step forward," he added, having doggedly pushed the two sides to agree to resume talks in six intense trips to the region since becoming the top US diplomat in February.
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But after a day in which the deal almost slipped away forcing him to spend hours working the phones, the top US diplomat cautioned he would remain tight-lipped about the details.
"The agreement is still in the process of being formalized, so we are absolutely not going to talk about any of the elements now".
A US State Department official said: "They have agreed on the core elements that will allow direct talks to begin".
The Israelis and Palestinians remain far apart on final status issues including the borders of a future Palestinian state, the right of return of Palestinian refugees, and the fate of Jerusalem which both want as a capital.
Kerry said Palestinian negotiator Saeb Erakat and his Israeli counterpart Tzipi Livni would meet him in Washington "to begin initial talks within the next week or so".
The Palestinian presidency hailed yesterday's development.
"Abbas's meeting with Kerry in his headquarters in Ramallah yesterday evening achieved progress, and will facilitate an agreement on the basis of a resumption of talks," spokesman Nabil Abu Rudeina said.
But Hamas, which rules the Gaza Strip, told AFP the movement "considers the Palestinian Authority's return to negotiations with the occupation to be at odds with the national consensus".