He said Hamas must disarm if it wants to play any role in a future Palestinian government.
Greenblatt's words follow a similar tone that the Israeli government took Tuesday in stating that it would "not conduct diplomatic negotiations with a Palestinian government that relies on Hamas, a terrorist organization calling for the destruction of Israel."
But Palestinian officials, including Hamas in Gaza, said that Israel and the U.S. envoy are meddling in internal Palestinian matters and that the reconciliation process will continue.
"This is blatant interference in Palestinian affairs because it is the right of our people to choose [the Palestinian] government according to their supreme strategic interests," senior Hamas official Bassem Naim told Agence France-Presse.
Nabil Abu Rudeineh, a spokesman for Palestinian Authority President Mahmoud Abbas, said the reconciliation agreement must be promoted to end Israel's occupation and establish an independent Palestinian state, local media reported.
For 10 years, the two parts of the Palestinian territories, the West Bank and the Gaza Strip, were ruled by mutually antagonistic groups that only recently agreed to bury their differences.
Palestinians have long believed that it is in Israel's interest to keep the two factions divided, weakening the Palestinians nationally and keeping the status quo in place.
"The reality is that there are no peace negotiations going on, and even if there were, they would not yield anything positive," said Diana Buttu, who served as a legal adviser for the Palestinian negotiating team.
"The Israeli government is looking for any excuse not to negotiate," she said. "They always say they want to negotiate, but the facts on the ground are exactly opposite. They refuse to remove settlements and are even celebrating 50 years of occupation."
Hillel Frisch, a senior lecturer at Bar Ilan University near Tel Aviv, said he was doubtful that Palestinian reconciliation would achieve anything anyway.
"I don't think Israel has to fret. It will end in a shootout at most," he said.
Over the past 10 years, there have been several abortive attempts at reuniting Hamas and Fatah, but even after the two sides agreed to form a unity government three years ago, Hamas continued to run Gaza.
This time, though, some Palestinian officials say conditions are more conducive. Gaza is in the midst of a humanitarian crisis that has paralyzed daily life for its 2 million inhabitants. Since Hamas took control, Israel has restricted trade and movement, citing security concerns. The enclave's crossing with Egypt has remained closed.
In May, Hamas, which has faced increasing isolation internationally, as well as growing hostility from the Fatah-led Palestinian Authority in the West Bank, introduced a new manifesto moderating its position toward Israel by distinguishing between Zionists and Jews.
The group is still designated a terrorist organization by Israel and the United States. Its founding charter declares that its goal is to obliterate Israel.
The stranglehold on Gaza worsened this summer when the Palestinian Authority asked Israel to reduce the electricity supply to the strip, demanding that Hamas pay its share of the cost. Gaza inhabitants were left with just a few hours of power a day.
Losing support locally, Hamas has said it is ready to hand over administrative control to the Palestinian Authority. The deadline for this process is set for February, and Abbas is expected to visit the Gaza Strip sometime in the near future.
Ghassan Khatib, a professor of political science at Birzeit University near the West Bank town of Ramallah, said the two factions still need to discuss certain issues but that for now the reconciliation arrangement serves only to address the problems in Gaza.
"Mr. Greenblatt's statement is completely unnecessary and has negative consequences because the Palestinians are not in the process of forming a government that is not compatible with its previous commitments," he said.
Moshe Maoz, an Israeli professor of Islamic and Middle Eastern studies at the Hebrew University of Jerusalem, said the United States and Israel are overreacting.
"They should look at the positive side of this new arrangement. In a sense, it carries some promise, as it could be a good chance for Israel to negotiate with the entire Palestinian people," he said.