While a deal is not yet in place, the Palestinians said their president, Mahmoud Abbas, is pleased with the progress and hopeful a formula can be reached to begin what would be the first substantive peace negotiations in nearly five years.
Kerry announced this week that he had significantly narrowed the gaps between the sides and would soon return to the region to try to wrap up the deal.
The Palestinians hope to establish an independent state in the West Bank, east Jerusalem and Gaza Strip, territories captured by Israel in the 1967 Mideast war. The last round of talks broke down in late 2008.
The Palestinians have demanded that Israel stop building Jewish settlements in the West Bank and east Jerusalem before negotiations begin. They see the continued construction of settlements, home to more than 500,000 Israelis, as a sign of bad faith that makes it increasingly impossible to partition the land. Israel withdrew from Gaza in 2005.
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Israeli Prime Minister Benjamin Netanyahu says negotiations should begin without any preconditions.
Two Palestinian officials familiar with the negotiations said that Kerry has floated a compromise in which Israel would freeze settlement construction outside of major "blocs" that Israel expects to keep. These blocs are mostly located along Israel's pre-1967 border.
"Kerry is trying to pave the way for relaunching the peace process. He is serious and we encouraged him. He made progress and we hope he can conclude a deal in the coming week," said one official.
Abbas has repeatedly rejected Israeli calls to recognize the country as the Jewish state, fearing it would undermine the rights of Palestinian refugees displaced from properties inside Israel.
Kerry's plan also calls on Israel to release about 100 of the longest-held Palestinian prisoners in its jails in several stages, and envisions a USD 4 billion international investment plan, conducted in various stages, to develop the struggling Palestinian economy.