The United States has put forward a new proposal that would secure the release of a handful of living hostages held by Hamas in exchange for a month-long extension of the Israel-Hamas ceasefire, a source familiar with the negotiations said.

Hamas said on Friday it had agreed to free an American-Israeli dual national if Israel begins a phase of ceasefire talks towards a permanent end to the war, but Israel dismissed the offer as "psychological warfare".

Hamas says it will only release an American-Israeli and the bodies of four other hostages if Israel implements their ceasefire agreement, calling it an “exceptional deal” aimed at getting the truce back on track.