Efforts to forge lasting peace between Israelis and Palestinians apparently suffered more setbacks Wednesday, even as U.S. Secretary of State John Kerry was in the Middle East trying to help mend relations.

Kerry met with Israeli Prime Minister Benjamin Netanyahu in Jerusalem, where the top U.S. diplomat acknowledged both sides of the strife.

"Israel deserves security, deserves to leave in peace," Kerry said. "The Palestinians deserve a state, deserve to live in peace, and that is what we are working towards."

But Netanyahu said that while Israel wants peace with Palestinians, "I'm concerned about their progress because I see the Palestinians continuing with incitements, continuing to create artificial crises, continuing to avoid and run away from the historic decisions that are needed to make a genuine peace."

But Palestinians had their own complaints. A Palestinian source close to the peace talks said there is a "deep crisis between the Palestinians and the Israeli negotiations team."

The source said the rift involves the ongoing construction of thousands of Israeli settlement units in the West Bank and Jerusalem as well as claims by Israel that Palestinians had agreed for Israel to continue construction in return for Israel freeing Palestinian prisoners.

"These are grave, wrongful and serious accusations by Israel, and Israel should stop its media incitement," the source said. "All settlements are illegal in the West Bank and Jerusalem."

$75 million from U.S.

After his stop in Jerusalem, Kerry traveled to Bethlehem and announced an additional $75 million in aid for the Palestinian Authority's High Impact Micro-Infrastructure Initiative, the U.S. State Department said.

That brings the total U.S. contribution to $100 million. Germany has also pledged over $10 million to HIMII projects in the West Bank, the State Department said.

"HIMII projects will create jobs and fund infrastructure projects throughout the West Bank including the construction and repair of health clinics, roads, water systems, community centers, and schools," the department said.

"The United States views the economic track as a vital complement to the ongoing direct final status negotiations between the Israelis and Palestinians."

Former Israeli official acquitted

In yet another development Wednesday, former Israeli Foreign Minister Avigdor Liberman was acquitted of corruption-related charges.

Israel's Ministry of Justice announced last December that he would be charged with breach of trust and fraud. Liberman announced his resignation the next day.

Prosecutors said Liberman pushed to get the Israeli ambassador to Belarus posted to another country after the diplomat allegedly handed over confidential information that included details of a secret police inquiry about Liberman. But Liberman has insisted he has not violated any laws.

Since Liberman's resignation, Netanyahu has been holding his post open for him.

"I congratulate you on your unanimous acquittal and am pleased that you are returning to the government," Netanyahu told Liberman on Wednesday, according to the foreign minister's office.

But before Liberman can return to the Foreign Ministry, the government has to vote on his nomination.

Liberman has faced international criticism for his hard-line stance on Israel's Arab minorities. His ultra-nationalist party is especially popular with immigrants from the former Soviet Union, where he was born and raised.

CNN's Sara Sidner contributed to this report.