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Kyle Richards, Kathy Hilton

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Kyle Richards and Kathy Hilton didn't unbox their issues this Christmas.

Despite smiling and posing for a photo with their mutual friend Faye Resnick at the annual Kardashian-Jenner Christmas Eve party Thursday night, E! News has learned the two sisters are continuing to ice each other out amid months of turmoil. "The photo was staged. Notice they're not even standing next to each other. It was an attempt to make everything look better than it actually is, but things are not smoothed over," a source says of Kyle, 46, and Kathy, 56. "They only saw each other briefly at the party."

Faye happened to be caught in the middle literally, not figuratively. While she is friends with both siblings, the source explains that she is "much closer to Kyle."

Meanwhile, former Real Housewives of Beverly Hills star Kim Richards, 51, is on good terms with her sister Kathy as her ever-fragile relationship with Kyle appears to be at a standstill. "Kathy and Kim are fine," the source tells E! News. "Kathy had Kim and her children over for Christmas this weekend, but not Kyle or her family." Posing with her own children, Kim shared an Instagram photo of her "amazing, beautiful family" celebrating inside Kathy and Rick Hilton's home.

Kyle and Kathy's drama dates back to June, when Kyle was disinvited then re-invited to her niece Nicky Hilton's wedding to banking heir James Rothschild. While Kathy has not publicly explained her side of the story, Kyle has said on episodes of Bravo's The Real Housewives of Beverly Hills that Kathy was upset about a deal she made with TV Land to produce a sitcom inspired by her childhood. "As mother of the bride, Kathy had a major say on the guest list. Nicky initially invited Kyle, but then Kathy called and uninvited her. She literally told her not to show up. But Kyle insisted that if Farrah, her oldest daughter, was a bridesmaid and Portia, her youngest, was a flower girl then she should be there," the source tells E! News. "Kathy relented but still said Kyle's other two daughters and Mauricio [Umansky] were not welcome." After some debate on Kyle's part, she decided to attend the wedding with Farrah and Portia.

There were other issues at play, though.

Years ago, Mauricio left Hilton & Ryland, Rick's real estate company, to start The Agency. "Kathy and Rick have no contact or relationship with Mauricio," the source says. "Rick and Mauricio haven't spoken in about five years." So, what happened? As one insider previously told E! News, "Rick and his team wouldn't make Mauricio a partner, even after years of working there and a lot of success. So he left. Now, Mauricio is not welcome at any Hilton events. It puts Kyle in a terrible position because she always has to choose between her husband and her older sister." Another insider offered a different take, saying, "Mauricio went behind Rick's back when he started his business. Rick did everything for Mauricio to get him started, he gave him clients, he introduced him to people. And then when Mauricio set up his own company, he did it covertly and informed Rick via email."

Many have tried to bring the families back together, including Faye. In fact, she went so far as to ask both Mauricio and Rick to walk her down the aisle at her wedding in October. Says the source, "Talk about awkward!"

(E! and Bravo are both members of the NBCUniversal family.)