Israeli Prime Minister Benjamin Netanyahu has said the Palestinian Authority must choose between a treaty with Hamas "or peace with Israel".
He was speaking hours after Palestinian President Mahmoud Abbas said he would head a unity government between the Hamas and Fatah movements - ahead of elections in the West Bank and Gaza.
"Hamas and peace do not go hand in hand," Mr Netanyahu said.
"Hamas is a terror organisation and is aimed at the destruction of Israel."
Last month Israel and the Palestinian Authority held their first talks in more than a year, without making any apparent progress.
The BBC's Jon Donnison, in Ramallah, says the fact Mr Abbas is pushing ahead in the teeth of opposition from Israel and the US indicates his frustration with the lack of progress in those US-mediated talks.
UN Secretary General Ban Ki-moon later urged Mr Abbas not to abandon talks with Israel.
The UN chief, in a phone call to Mr Abbas, said that "the two tracks" of Palestinian reconciliation and negotiations with Israel "should not be seen as contradictory", Mr Ban's spokesman Martin Nesirky said.
Mr Abbas and Hamas leader Khaled Meshaal have been holding talks in Qatar over a reconciliation deal reached in April 2011.
Correspondents say the issue of who would head the government has been one of the main stumbling blocks to implementing the agreement.
The deal sought to end more than four years of separate governments in the Hamas-run Gaza Strip and the West Bank - areas of which are governed by Mr Abbas's Western-backed Palestinian Authority.
The line-up of the government will be announced on 18 February in Cairo, a Fatah official told the AFP news agency.
The government will be made up of technocrats and independents, reports say.
Mr Abbas said the two sides were serious about political unity.
Mr Meshaal added: "We inform our people that we are serious about healing the wounds... to reunite our people on the foundation of a political partnership, in order to devote our effort to resisting the [Israeli] occupation.''
As part of the April agreement, an interim unity government was to prepare for presidential and parliamentary elections.
But Hamas strongly opposed Mr Abbas's initial choice of Salam Fayyad, the current prime minister of the Palestinian Authority in the West Bank.
The elections were expected to be held in May, but the Palestinian election commission says more time will be needed, Reuters news agency reports.
'Must recognise Israel'
Fatah has historically been the dominant faction in the Palestinian nationalist movement, but in January 2006 the Islamist militant movement Hamas won Palestinian Authority legislative elections.
The government subsequently sworn in was widely boycotted by the international community.
In early 2007 Fatah and Hamas agreed to form a coalition to end growing factional warfare.
In June of that year Hamas seized control of Gaza by force. Gaza and the West Bank came under separate government, and Israel and Egypt tightened the blockade on Gaza.
The Middle East Quartet of the United States, Russia, European Union and United Nations insists Hamas should renounce violence, recognise Israel and back past Israeli-Palestinian agreements before a Palestinian unity government can be recognised.
US State Department spokeswoman Victoria Nuland said any Palestinian government "must unambiguously and explicitly commit to non-violence"
"It must recognize the state of Israel and it must accept the previous agreements and obligations between the parties, including the road map," she added.