The Palestine Liberation Organisation was preparing Friday for weekend crisis talks to mull its options after Israel torpedoed the US-sponsored peace talks in response to a Fatah-Hamas reconciliation deal.

With the peace process that US Secretary of State John Kerry has fought long and hard for apparently back to square one just days before an April 29 deadline, both sides were considering their next move.

Israeli Prime Minister Benjamin Netanyahu set the tone, telling the BBC that Palestinian president Mahmud Abbas could "have peace with Israel or a pact with Hamas (but) he can't have both".

"As long as I'm prime minister of Israel, I will never negotiate with a Palestinian government that is backed by Hamas terrorists that are calling for our liquidation," he added.

US President Barack Obama, whose administration dragged both sides back to the negotiating table last July after a three-year hiatus, called the Palestinian unity deal "unhelpful".

Speaking in Seoul, Obama acknowledged the need for a "pause", but vowed he would not give up on Kerry's peace push.

Kerry himself urged both sides to "compromise", maintaining that "we will never give up our hope or our commitment for the possibilities of peace".

US State Department spokeswoman Jen Psaki said "we're in a holding period to see what the parties are willing to figure out about what's next."

The two sides have been on a collision course since March when Israel refused to release a final batch of Palestinian prisoners in line with the original deal on resuming the talks.

The Palestinians retaliated by applying to adhere to 15 international treaties and then Abbas, who heads the Palestinian Authority (PA) and Fatah, listed conditions for extending the talks beyond the April 29 deadline.

Abbas said he would agree to an extension if Israel freezes settlement construction in the occupied West Bank and annexed east Jerusalem, frees the prisoners and begins discussions on the future borders of a promised Palestinian state.

Israel dismissed the conditions.

At the same time, the Islamist Palestinian movement Hamas and the Fatah-led PLO agreed to establish a "national consensus" government under Abbas within weeks.

- Threats of unspecified 'measures' -

The reconciliation deal infuriated Israel whose security cabinet said Thursday it would "not negotiate with a Palestinian government backed by Hamas".

It also vowed unspecified "measures" in response.

The PLO leadership is to convene on Saturday in the West Bank city of Ramallah to debate the peace process and its options, with Abbas due to make a key speech on Sunday.

Israel's chief negotiator Tzipi Livni stressed Thursday night that Israel was not "closing the door" on the peace process and that punitive sanctions would not be severe or seek to collapse the PA.

Security coordination is one aspect of Israeli ties with the PA that could be impaired by new measures.

But according to Israeli newspaper Maariv, "no guidelines have been issued to the forces on the ground regarding a change in the existing security coordination policy with the PA".

US analysts insist that the peace process has life in it yet.

"Now is not the time to declare anything dead -- now is the time to understand fundamentally why this didn't work," said Aaron David Miller, a diplomat who worked for six secretaries of state on the process.

"It's never dead. It's like rock and roll, it will never die," the Woodrow Wilson International Center analyst told AFP.

The Gaza Strip -- ruled by Hamas while Abbas's writ is confined to the West Bank -- has been besieged by Israel since 2006.

The coastal enclave is in a dire humanitarian and economic situation, which pushed it towards signing the deal with PLO, despite refusing to recognise Israel and advocating armed struggle against it.

"Hamas is in distress. It is more flexible than ever before," Israeli columnist Nahum Barnea wrote in Yediot Aharonot.

Delegates from Hamas are expected to attend the weekend PLO meeting.

Ahead of the meeting, Palestinian prime minister Rami Hamdallah told Abbas Friday he would resign if the president deemed it necessary for the formation of the new unity government.

Hamdallah, who twice in 2013 sought to resign following power struggles, sent Abbas a letter offering his resignation, official Palestinian news agency Wafa reported.

burs/al/srm