A Palestinian unity deal, slammed by Barack Obama as an "enormous obstacle to peace," emerged after Hamas and Fatah agreed on the shared goal of a state on the 1967 lines and the failure of talks with Israel.

"The recent agreement between Fatah and Hamas poses an enormous obstacle to peace," the US president told delegates at the US-Israel lobby group AIPAC in Washington on Sunday, demanding the Islamist movement recognize Israel, reject violence and respect all existing agreements with Israel.

Obama's rebuke of the reconciliation deal between Fatah, which dominates the West Bank-based Palestinian Authority, and Hamas, the Islamist movement which runs Gaza, stood in stark contrast to the cautious welcome offered by the diplomatic Quartet of Middle East peacemakers.

And it mirrored the reaction of Israeli Prime Minister Benjamin Netanyahu, who has branded the agreement "a tremendous blow to peace and a great victory for terrorism."

But Yasser Abed Rabbo, a top official with the Palestine Liberation Organization, on Monday insisted the new alliance would help rather than harm attempts to revive peace talks with Israel.

"We have repeatedly said that this agreement is completely the opposite of this. It represents a significant step that could push the political process forward," he told Voice of Palestine radio.

Under terms of the deal, the two parties would work together to set up a caretaker government of independents not allied to either faction to work towards holding elections within the next year.

The interim government would have nothing to do with peace negotiations, which would remain the mandate of the PLO, the official representative of the Palestinian people and which is headed by President Mahmoud Abbas.

"The United States and Israel do not need to deal with every Palestinian faction separately," Abed Rabbo said.

"If we had to deal with each Israeli party that composes the current government coalition, we would not find any of them ready to talk with us."

"The USA should deal with the PLO, which has not changed its stances and commitments," he added.

Abbas also spoke up in defense of the agreement between his Fatah movement and Hamas after Obama's remarks, saying the Islamist group was "part of Palestinian society and was a democratically-based [political] opposition movement."

Despite Israeli and US fears that the agreement would hinder peace negotiations -- which have been on hold since late September -- the two factions said it was the failure of the talks which pushed them to end years of bitter dispute.

And although Hamas refuses to recognize Israel, its leader in exile, Khalid Mash'al, said he was ready to give peace talks "an additional chance" despite the failure of all negotiations since the 1991 Madrid Conference.

"To be honest, Hamas came over to our program," said senior Fatah official Nabil Sha'ath, pointing to remarks by Mash'al after the deal was signed on May 3, in which he spoke of "a common national goal" of a state along the 1967 borders comprising the West Bank, Gaza Strip and East Jerusalem.

Although Mash'al stopped short of recognizing Israel, his remarks implicitly suggested that Hamas, whose charter calls for the establishment of an Islamic state "from the Jordan River to the Mediterranean Sea," would accommodate the existence of Israel.

"I don't think we need anything more from Hamas," Sha'ath said, arguing it would be "ridiculous" to ask Hamas to recognise the state of Israel at this stage.

"What for? Will that be reciprocated by Israel recognizing Hamas or recognising the Palestinian state? It won't." he said.

"If Hamas is committed to a negotiated settlement, is committed to non-violence, and is committed that the end result be the borders of 1967, that's good enough."

On Thursday, Obama became the first US president to publicly state the borders of a future Palestinian state should be based on the line of before the 1967 Middle East war, combined with mutually-agreed landswaps.