“Killing (him) is definitely one of the options,” Olmert, a member of Israeli Prime Minister Ariel Sharon’s Likud party, told Israeli radio on Sunday.
Arafat is one of the “heads of terror”, claimed Olmert, who also serves as minister of industry and trade.
Olmert said another option would be to treat Arafat like “a prisoner in a dungeon”.
“He’d receive his food ration twice a day but would not be able to meet with anyone, convene news conferences, give interviews or speak on a cell phone or telephone.”
Israeli media reports also say that Avi Dichter, chief of the Shin Bet Domestic security service, favours killing Arafat rather than expelling him.
Ditcher believes Arafat’s death would have a short-term effect, triggering protests that would last only several weeks, while exile would return him to the world stage and win him sympathy.
However, US Secretary of State Colin Powell rejected suggestions that it was an "option" to kill Arafat.
"The United States does not support either the elimination
of him or the exile of Mr. Arafat ... the Israeli government
knows that," Powell said in an interview on Sunday from Baghdad with a US-based television station.
"I think you can anticipate that there would be rage throughout the Arab world, the Muslim world and in many other parts of the world," he said.
For now, however, the Israeli army has drawn up a plan to seize Arafat, revealed Deputy chief of staff Gaby Ashkenazi.
Expelling Arafat will boost his
"The army is ready to carry out this mission whenever the government gives the order," he said.
The scheme was titled Getting Arafat out of the Muqata and Expelling Him, in referrence to the president's compound.
But reserve colonel Shalom Harari, a former advisor to the defence ministry, warned there was little chance of Israelis leaving the compound safely.
Israel’s security cabinet announced it would “remove” Arafat last week, triggering an outcry from Palestinians and the international community that feared the veteran leader would be expelled.
It did not say when it would move against him.
The vague wording left room for several options, including exile, isolation or killing Arafat - a proposal which media reports said Defence Minister Shaul Mofaz raised but Sharon refused.
Palestinian chief peace negotiator Saib Arakat said Israel was “determined to kill President Arafat and throw the Palestinians into chaos and anarchy”.
"The United States does not support either the elimination of him or the exile of Mr. Arafat ... the Israeli government
Colin Powell, US Secretary of State
“This is the thinking and action of the Mafia - not a government,” he said.
Tens of thousands of Palestinians poured into the streets of the occupied West Bank and Gaza Strip in a show of support for Arafat on Saturday for the third day running.
Many vowed to resist Israeli forces if they tried to seize Arafat from his battered Ram Allah headquarters.
On Sunday, Arafat addressed by telephone a crowd of about 20,000 Palestinian refugees in a south Lebanon refugee camp.
From Ram Allah, Arafat thanked demonstrators for their support and vowed to thwart Israeli efforts to expel him.
"I tell you that any attempts to get our people to capitulate will fail because with God's help we will not kneel down," he told the crowd in Rashadiya camp.
Sharon has placed the Palestinian president under siege for the past 21 months.
In response to Israel’s threat, Palestinian prime minister-designate Ahmad Quraya has delayed plans to name a cabinet to replace that of Mahmud Abbas.
The latter quit after accusing Arafat and Israel of undermining him.