The Palestinians are considering "all options" in response to Israel's decision to halt peace talks and punish the Palestinian Authority over its unity deal with Hamas, an official said Thursday.

"The Palestinian leadership will look into all options to respond to Israeli government decisions against the PA," senior Palestinian official Saeb Erakat told AFP.

"The priority now for the Palestinians is reconciliation and national unity," he added.

On Wednesday, the Palestine Liberation Organisation (PLO) -- internationally recognised as the sole representative of the Palestinian people -- and Islamist rulers of the Gaza Strip Hamas signed a reconciliation agreement.

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

Israel said it would not negotiate "with a Palestinian government backed by Hamas" and vowed "measures" in response to the move, but did not specify what they might be.

Israeli premier Benjamin Netanyahu lashed out at Abbas on Thursday, saying that instead of choosing peace, he "made a pact with a murderous terror organisation that calls for the destruction of Israel."

But Erakat, who is also the chief Palestinian peace negotiator, put the blame for the failure of peace talks on Israel.

"Netanyahu's government has been asked for years to choose between peace and settlements and it chose settlements," he said.

The Palestinian unity deal came as the US was making last-ditch efforts to extend the talks beyond their April 29 deadline.