Clinton had called Israel's position on settlements "unprecedented" during a news conference with Israeli Prime Minister Benjamin Netanyahu.
Chief Palestinian negotiator Saeb Erakat rejected her comment Sunday in a strongly worded statement.
"What the Israelis are offering is not unprecedented," he said. "What would be unprecedented is a comprehensive settlement freeze by Israel... and a halt to Israeli policies in occupied East Jerusalem such as home demolitions, evictions and rapid settlement expansion."
The debate is over Israeli construction on occupied Palestinian land in the West Bank and predominantly Palestinian East Jerusalem.
"Without a settlement freeze and the eventual dismantlement of settlements, there will be no Palestinian state to negotiate and no two-state solution left to speak of," Erakat said.
Clinton on Saturday praised Israel for "restraint" in its settlement policy, but Erakat said that did not go far enough.
"If America cannot get Israel to implement a settlement freeze, what chance do Palestinians have of reaching agreement with Israel on permanent status issues," he asked.
He said Israel's position on settlements was nothing "other than a failure of Israel to implement a comprehensive settlement freeze as it is required to do under the 2003 road map. Since 2003, the settler population in the West Bank has increased by 73,000 settlers or 17 percent."
Netanyahu said Sunday he hoped peace talks would resume soon.