"Pressure from the Pakistani side will help push the Taliban toward the negotiating table and away from al-Qaeda," Clinton said in a speech at The Asia Society.
In a 35-minute lecture honouring the late Richard Holbrooke, who was special representative for Afghanistan and Pakistan, Clinton also urged the Pakistani government to implement reforms.
"Distrust lingers on both sides," Clinton said. "We need to work together carefully to prevent misunderstandings and disagreements from derailing the progress we have made in the past two years."
She also welcome the decision of Pakistan and India to resume peace talks, saying the United states had encouraged both sides.
On Afghanistan, Clinton said that reconciliation is the only way to ensure Afghanistan's lasting stability and challenge extremists to abandon al-Qaeda and to align themselves with the government for the good of the country and their own safety. "They cannot wait us out," Clinton said. "They cannot defeat us. And they cannot escape this choice."
"The escalating pressure of our military campaign is sharpening a similar decision for the Taliban: break ties with al-Qaeda, give up your arms, and abide by the Afghan Constitution and you can rejoin Afghan society," Clinton said. "Refuse and you will continue to face the consequences of being tied to al-Qaeda as an enemy of the international community."
Her remarks came as the US increases military pressure on extremists, and said it has the Taliban on the run in key areas of the country. Heavy fighting is expected this spring, along with a continued heavy reliance on unmanned drone attacks and secret ground raids targeting militant leaders along the Pakistan border.
The United States plans to begin withdrawing troops from the country this summer, and President Barack Obama has promised that the US combat role will end in 2014.
The administration will begin assessing conditions for possible troop drawdowns next month as it determines where Afghan security forces can take the lead.
Clinton said the transfer of authority from US-led international force to the Afghans would promote reconciliation.
"As transition proceeds and Afghan leadership strengthens across the country, a process of political reconciliation will become increasingly viable," she said. "In turn, successful reconciliation will reduce the threat to the Afghan government, making transition more sustainable."
Elaborating her remarks on Pakistan's economy, Clinton said its public finances are in disarray and that energy shortages are hampering economic growth and causing political instability there.