Calls for a full-scale assault have been spurred in Israel by near-daily firing of rockets from Gaza.
General Gaby Ashkenazi, the Israeli army chief, told a military meeting on Monday that "the army is prepared and ready to broaden its actions in conformity with the decisions taken".
On Sunday, Ehud Olmert, the Israeli prime minister, ruled out a widespread ground offensive but warned that no one from Hamas was immune to Israeli strikes.
New constructions
In another development, Israel's housing ministry said on Tuesday preparations were under way to build up to 1,100 new homes in and around Arab East Jerusalem, which Palestinians see as capital of a future state.
The ministry said the municipality of Jerusalem was preparing tenders for 750 housing units in a northern area known as Pisgat Zeev, and possibly for an additional 370 units to the south in what is known to Israelis as Har Homa and to Palestinians as Jabal Abu Ghneim.
"We are building in Jerusalem everywhere within its municipal boundaries," Zeev Boim, the Israeli housing minister, told Israel Radio.
An aide to Boim said tenders for the 370 additional units in Har Homa would only be issued pending the results of a previous tender for 307 units in the area.
Stalled peace process
US-backed peace talks between Olmert and Mahmoud Abbas, the Palestinian president, bogged down late last year after Israel announced plans to build hundreds of new homes in Jabal Abu Ghneim.
Under US pressure, Olmert has imposed a de facto halt to new construction in Jewish settlements in the occupied West Bank, but he has not called off plans to build new homes within the boundaries of Jerusalem as defined by Israel.
The future of Jerusalem, which Israel regards as its "complete and united capital", is one of the most divisive issues facing Israeli and Palestinian negotiators.
Abbas wants Arab East Jerusalem, captured by Israel in the 1967 Middle East war and annexed in a move not recognised internationally, as capital of the state he wants to establish in the occupied West Bank and Hamas-controlled Gaza Strip.
Palestinians see the building of Har Homa as the last rampart in a wall of settlements encircling Arab East Jerusalem, cutting it off from the rest of the occupied West Bank.
They say it is a strategic move by Israel to pre-empt any possibility of East Jerusalem becoming the Palestinian capital.
Abbas wants a final peace treaty enabling him to declare a state by the end of the year.
Speaking in Washington, Salam Fayyad, the Palestinian prime minister, accused Israel of failing to keep its commitments to freeze Jewish settlement activity and to ease checkpoints that limit Palestinian mobility in the West Bank.