Israeli Prime Minister Benjamin Netanyahu has said that Palestinian moves to form a unity government with Hamas were "a giant leap backward" for the peace process.

"The pact with Hamas kills peace," the Israeli leader told NBC television.

He was speaking shortly after the Israeli cabinet announced it was halting the US-led peace process.

"I think that what has happened is a great reverse for peace, because we had hoped that the Palestinian Authority president [Mahmoud] Abbas would embrace the Jewish state, the idea of two nation states, Palestinian one and a Jewish one," Mr Netanyahu told NBC's Andrea Mitchell.

"But instead, he took a giant leap backward, and made a pact with Hamas - a terror organisation that calls for Israel's destruction."

The Palestine Liberation Organization, which is internationally recognised as the sole representative of the Palestinian people, and Hamas signed a reconciliation agreement yesterday.

Under the agreement, which came as the US-brokered peace talks were at a standstill, the sides agreed to form within weeks a "national consensus" government under Mr Abbas, who rules the West Bank.

Mr Netanyahu said: "[Mr Abbas] had a choice: peace with Israel or pact with the terrorist Hamas, and he choose the pact with Hamas. So that's the blow for peace, and I hope he changes his mind."

"As long as I am prime minister of Israel, I will never negotiate with a Palestinian government backed by terrorist organisations committed to our destruction."

He called for clarity, saying Mr Abbas "can't have both, he really has to choose: peace with Israel or a pact with Hamas".

US Secretary of State John Kerry has urged the Israelis and Palestinians to make the compromises needed to forge ahead with the peace talks.

Mr Kerry admitted the negotiations had reached "a difficult point".

He said: "There's always a way forward, but the leaders have to make the compromises to do that ... if they're not willing to make the compromises necessary it becomes very elusive."