"The dialogue remains open. There was progress made in narrowing some questions that have arisen as a result of the last few days, but there is still a gap and that gap will have to be closed and closed fairly soon," said Mr Kerry.
He made his remarks during a visit to Algeria after direct peace negotiations appeared near to collapse, with the Israelis and Palestinians accusing each other of failing to honour prior commitments.
Mr Kerry added: "We are urging them to find compromise that is critical for them to move forward."
The talks ran into trouble at the weekend when Israel refused to release a group of Palestinian prisoners under the terms of a previous accord unless it received assurances the Palestinian leadership would continue with negotiations beyond an initial end-April deadline.
Aimed at creating a Palestinian state and ending a decades-long conflict, the talks have also stalled over Palestinian opposition to Israel's demand that it be recognised as a Jewish state and also the issue of Israeli settlements in the occupied West Bank and East Jerusalem.
Mr Kerry flew to Jerusalem on Monday and was trying to put the talks back on track, but his mission was jeopardised when Palestinians signed 15 international conventions, a move that angered Israel.