"We think it is in the best interest of the effort that we are engaged in, that settlement expansion cease," Clinton said.
"That is our position, that is what we have communicated very clearly not only to the Israelis but to the Palestinians and others. And we intend to press that point," she said.
But an Israeli government spokesman on Thursday said settlement activity would continue as usual.
"Normal life" will be allowed in settlements in the occupied West Bank, Mark Regev said, effectively meaning construction will continue to accommodate population growth.
The fate of settlements "will be determined in final status negotiations between Israel and the Palestinians and in the interim, normal life must be allowed to continue in those communities," he said.
Regev also told Al Jazeera on Thursday that the Arab world and Palestinians had their own obligations for peace to be cemented in the region and it was not fair to put all the blame on Israel.
"I'm not in any way shirking Israel's obligations, what I'm saying is we have to see Palestinians and Arab states move forward on their obligations as well - that's a key to a healthy peace process," he said.
Meanwhile Saeb Erekat, chief Palestinian negotiator, told Al Jazeera that while the Palestinians appreciated the US statement they hoped the US would get Israel to 'comply'.
"Settlements are illegal and illegal things don't have natural growth and should not have natural growth and it's really shameful to continue throwing [out] this line and at the same to time to speak about a two state solution."
"Israel has the choice - settlements or peace. They can't have both."
Al Jazeera's Nour Odeh in Ramallah says the Palestinian president plans to present Obama on Thursday with a detailed plan not just of a Palestinian vision for peace but also for peace in the wider region, based on the Arabi peace initative and other initatives.
He will also be asking for specific steps to be taken, including urging Israel to commit to a two-state solution and to end all settlement activity, she says.
Abbas, who met Clinton for dinner on Wednesday, has ruled out restarting long-stalled peace talks until Israel halts all settlement activity.
The Palestinians say settlements built on land Israel occupied in the 1967 Middle East war and deemed illegal internationally, could deny them a viable and contiguous state and that expansion activities undermine efforts to negotiate a peace agreement.
Less than a week after meeting Obama, aides quoted Netanyahu as telling his cabinet that while he did not intend to build new settlements, "it makes no sense to ask us not to answer to the needs of natural growth and to stop all construction".
"[US President Barack Obama] wants to see a stop to settlements. Not some settlements, not outposts, not natural growth exceptions"
US secretary of state
"Natural growth" is a term used by Israelis to describe construction inside existing settlements that they say is necessary for the needs of growing settler families.
Outposts are smaller settlements, often just a group of trailers inhabited by a few dozen people, built without Israeli government authorisation but often given infrastructural support by the government.
Al Jazeera's Sherine Tadros in the West Bank said Clinton's statement is not the first time a US administration discusses the issue of freezing settlements.
"But her statement is significant because she talks about no exemption and the fact that natural growth is not an excuse for settlement expansion.
"The question is will it make a difference and here on the ground we haven't seen any since Obama took power. So obviously you can see the difference between what is said and what is done," she said.
Israeli media reported earlier in the week that Netanyahu was willing to tear down outposts in the occupied West Bank in return for US backing on its stance on Iran.
About 500,000 Israeli setters live in more than 100 settlements that Israel has built since its 1967 occupation of the West Bank and East Jerusalem, territory in which close to three million Palestinians live.
Under the US-backed 2003 "road map" peace plan, Israel is supposed to end all settlement activity, including natural growth, while the Palestinian Authority is supposed to crack down on armed groups who seek to attack Israelis.
The two sides accuse each other of not fulfiling its obligations under the plan.