His warning followed meetings in Nairobi Monday with Kenyan President Uhuru Kenyatta and foreign ministers from Somalia, South Sudan and Sudan to discuss escalating violence in South Sudan and the deployment of a UN protection force.
"It's really up to the people, the leadership of South Sudan to lead and to do the things that they've promised to do," Kerry said in an interview with South Sudan's "Eye Radio" broadcast Tuesday morning, Reuters reported.
"If they don't, then obviously it may be that the UN arms embargo and sanctions are going to be the tools of last resort. It's not what people wanted to have to do, but our hope is that the government, the transition government will seize the bull by the horns here and get the job done," he added.
Fighting in the capital Juba last month has raised fears that the five-year-old nation could slide back into civil war.
The violence prompted the United Nations to authorize the deployment of 4,000 extra UN troops to bolster a UN mission there, warning South Sudan it would face an arms embargo if it did not cooperate.
South Sudan's government initially said it would not cooperate with the new UN troops which will be under the command of the 12,000-strong UNMISS mission. But since then it has said it was still considering its position.
Kerry said the force was not an intervention force that would challenge the sovereignty of the country. Its main task would be to protect property and civilians in Juba.
South Sudan secured its independence in 2011, but by December 2013 the longtime political rivalry between Kiir, an ethnic Dinka, and Machar, a Nuer, had led to civil conflict that often followed ethnic lines.
The two men signed a peace deal in August 2015, but spent months wrangling over details while sporadic violence flared. Crucial elements of the deal, such as integrating the government and former rebel forces, have not been carried out.
The fighting has killed thousands of people and driven more than 2 million people from their homes, with many of them fleeing to neighboring states.
Ask whether the United States was willing to help South Sudan's economy recover, Kerry said it would only do so if the nation's leaders implemented a peace agreement and was doing whatever necessary to stabilize the country.
"If they choose not to do that, then we, who have been the largest donor in the world to the government of South Sudan, will have to rethink what we're doing," he added.