Mr Netanyahu's appeal came after the US backed his stance on rejecting a settlement freeze ahead of any negotiations.
'I hope very much that the Palestinians will come to their senses and enter the peace process,' Mr Netanyahu said at the start of a weekly cabinet meeting.
'The peace process is an Israeli interest as much as it is a Palestinian one.'
Mr Netanyahu was speaking a day after US Secretary of State Hillary Clinton hailed his 'unprecedented' position on settlements.
Mrs Clinton backed his call that negotiations should resume despite the Palestinians' insistence that Israel should first freeze all settlement activity in the occupied West Bank.
It marked a sharp easing of tone by Washington on the delicate issue of settlements.
Mr Netanyahu hailed his meeting Mrs Clinton, which lasted into the early morning hours on Sunday and criticised the Palestinians for setting preconditions.
He said: 'We have shown a willingness to do unprecedented things to relaunch the process.
'But we are encountering the opposite from the Palestinians. We are encountering preconditions from the Palestinians that have not been set in all the 16 years of the peace process.
'This reality is clear to everyone today. It's clear to the international community and of course the United States.'
The two decided that US Middle East envoy George Mitchell would stay on for a day for follow-up talks.
'We are making a concerted effort in order to allow the renewal of the peace talks,' he said.
'We hope that as much as we are ready to start the peace talks without delay, we can find a similar position on the Palestinian side.'
