"The state that Netanyahu talked about, with control on it by land, sea and air, is a freak entity and a big prison, not a country fit for a great people," Meshaal said.
He said Hamas, which is mainly supported by Syria and Iran, sees no alternative but to continue armed struggle to liberate Palestinian land after decades of Israel flouting international resolutions to withdraw.
"There is no alternative," Meshaal said.
"Peaceful resistance works for a civil rights struggle, not in front of an occupation armed to the teeth."
Meshaal welcomed what he said is "new language" by Barack Obama, the US president, towards Hamas.
"We appreciate Obama's new language towards Hamas. And it is the first step in the right direction towards a dialogue without conditions, and we welcome this," he said.
Meshaal said that Obama's words must be followed by action on the ground, mentioning that Palestinians in the Gaza Strip continue to suffer under an Israeli blockade.
"Occupation and injustice go on," he said.
He also said there were optimistic signs in relation to negotiations between Hamas and its rival Fatah of Mahmoud Abbas, the Palestinian president.
Talks with Fatah would continue this coming Sunday in the Egyptian capital Cairo, Meshaal said.
He also called on Obama to pull out Lieutenant-General Keith Dayton, the US security co-ordinator in the region, who is supervising the training of Palestinian forces in the West Bank.
Meshaal's comments came as Israel granted Palestinian security forces trained by General Dayton's team greater autonomy in four main West Bank towns, according to Israeli and Palestinian defence officials.
In a statement, the Israeli military said Palestinian security forces "will be able to extend their hours of operation" in the towns but emphasised that Israeli forces would continue to operate in the West Bank "in order to thwart terrorist operations".
Israel already has turned over limited security control to Palestinians in three other West Bank towns, but the military said that forces in Qalqiliya, Bethlehem, Jericho and Ramallah would be the first to operate around the clock without Israeli clearance.
The move stops short of a full withdrawal from these towns.
Lamis Andoni, Al Jazeera's senior Middle East analyst, said that Meshaal's speech sent two messages "that aim at repositioning Hamas as an acceptable negotiator at peace talks and as a more credible representative of the Palestinians than the Palestinian Authority (PA).
"The first message was to the West. He has signalled that Hamas is a pragmatic movement and has officially endorsed the two-state solution - that is, the establishment of an independent Palestinian state within the 1967 borders.
"The second message was addressed to the Palestinians".
Andoni said by calling on the American president to withdraw General Dayton from his mission, Meshaal was indirectly accusing the PA of cracking down on Hamas on behalf of America and Israel.
"Hamas seems to be competing with the PA over who should be on the negotiating table, rather than on trying to assert its resistance-based political platform," Andoni said.
"The irony is that, it can only get a place at the negotiating table, under the current conditions, is by accepting the terms, including the role of General Dayton".
Ghassan Khatib, an analyst at Birzeit University in Ramallah, told Al Jazeera: "This speech is an attempt to reciprocate the positive tone we have heard from President Obama.
"I believe that Meshaal is trying to send positive signals to the American side in order to take step in their direction.
"In terms of a response to the Israel side, there's no major difference between what Meshaal said and what other Palestinian leaders have said about refusing the Jewish state idea and the insistence on stopping the expansion of settlements and so on.
"The Americans have to ensure change in the internal politics in both Israel and Palestine in order to create situations that are more conducive to peacemaking on both sides."