"President Abbas spoke more despairingly my friends, than I have ever heard him about the sense of hopelessness that the Palestinian people feel," Kerry said in a speech at the Brookings Institution.
Murdered Palestinian family's relatives doubt Israeli justice
He said that Israel would have to shoulder some of responsibility, such as providing basic services in the West Bank, if the Palestinian Authority collapsed.
More than two months of Palestinian knifings, car-rammings and occasionally shootings have killed 19 Israelis and a US citizen. Israeli forces have killed 102 Palestinians in the same period, of whom 63 were identified by Israel as assailants or caught on camera carrying out assaults.
The bloodshed has been fueled by Muslim agitation over increased Jewish visits to East Jerusalem's al-Aqsa mosque compound - Islam's third holiest site and also revered by Jews as the location of two biblical-era temples.
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The Palestinians are also frustrated by the failure of decades of peace talks to deliver them an independent state.
Kerry traveled to the region last month to try to stop the ongoing violence.
"Without the PA security forces the (Israel Defense Forces) could be forced to deploy tens of thousands of soldiers to the West Bank indefinitely to fill the void," Kerry said.
"Are Israelis prepared for the consequences this would have for their children and grandchildren who serve in the (Israel Defense Forces)?"
He also condemned the building of settlements by Israel and said that nearly all of Area C, which makes up about 60 percent of the West Bank, was "effectively restricted" for Palestinian development.
"Settlements are absolutely no excuse for violence, no they are not, and we are clear about that. But the continued settlement growth raises honest questions about Israel’s long-term intentions and will only make separating from the Palestinians much more difficult,” he said.
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Last month, Israeli Prime Minister Benjamin Netanyahu approved the marketing of land for the construction of more than 400 homes in two settlements in East Jerusalem.
Some 500,000 Israelis have settled in the West Bank and East Jerusalem among 2.4 million Palestinians. The World Court says settlements Israel has built there are illegal, a view Israel disputes.
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