The interview with Netanyahu was conducted by host Sean Hannity, who accompanied US Secretary of Defense James Mattis on his visit to Israel.
Netanyahu made his comments a week before Palestinian President Mahmoud Abbas is set to travel to Washington to meet President Trump.
In Netanyahu's comments on the so-called Palestinian test of peace, the prime minister demanded that the PA "come clean" and stop paying terrorists.
"I'm not talking about Hamas. I'm talking about the mainline Palestinian Authority headed by the president, who is going to see President Trump in Washington. They give hundreds of millions of dollars annually to terrorists and their families who murdered Israelis and Americans," said Netanyahu.
The prime minister elaborated, saying that the PA's payments are made on the basis of killing, saying, "The more you kill, the more you get."
On the prospect of negotiating directly with the Palestinians, Netanyahu said Palestinians need to change and the world needs to pressure them to do so. He further said that Palestinians need to change their "doctrine of death."
"The first to welcome the change would be me. I know the price of war. There is no one who wants peace more than Israel. We teach our children peace."
Fox News contributed to this report.
(Translated and edited by Fred Goldberg)