Mahathir Muhammad told the Organisation of Islamic Conference summit on Thursday this was the only way to reverse 50 years of bitter defeat.
Mahathir told delegates the Jewish people, because of their relationship with the United States, had an influence in the world that far outweighed their numbers.
"It cannot be that there is no other way - 1.3 billion Muslims cannot be defeated by a few million Jews," he said in an address in Putrajaya, Malaysia.
He added: "The Europeans killed six million Jews out of 12 million. But today the Jews rule this world by proxy.
"They have survived 2000 years of pogroms not by hitting back but by thinking."
Developing his theme, he said Israelis were becoming too arrogant. "Arrogant people, like angry people, will make mistakes, forget to think.
"This tiny community have become a world power. We cannot fight them through brawn alone. We must use our brains as well."
However, Mahathir controversially appeared to suggest it was time for an end to violence against the Israelis.
Mahathir is due to retire on 31
October after 22 years in power
"Over the past 50 years of fighting in Palestine we have not achieved any result. We have in fact worsened our situation," he said.
"The Quran tells us that when the enemy sues for peace we must react positively. True, the treaty offered to us is not favourable. But we can negotiate. The Prophet did... And in the end he triumphed."
Last year, Mahathir, to the chagrin of Arab OIC members, declared Palestinian human bombers who attacked civilian targets as "terrorists" along with the Israeli state.
He said he was aware this proposal would not be popular and its opponents "would want to send more young men and women to make the supreme sacrifice. But where will all these lead to? Certainly not victory."
Acknowledging weakness and division in the organisation's ranks, Mahathir said they could at least take a common stand on the Palestinian struggle against Israel.
He added it was time to plan a "counter-attack" against the enemies of Islam who treated Muslims with "contempt and dishonour".
He told the biggest gathering of Muslim leaders since the September 11 attacks, that all Muslims were suffering "oppression and humiliation", with their religion accused of promoting terrorism.
And he called on Muslims to match their studies of religion with attention to science and mathematics because "we need guns and rockets, bombs and warplanes, tanks and warships for our defence".
This was apparently a reference to what he sees as a broader assault on Muslims by the Western world in the guise of "the war on terrorism". He said enemies of Islam "attack and kill us, invade our lands, bring down our governments".
"It cannot be that there is no other way - 1.3 billion Muslims cannot be defeated by a few million Jews"
Malaysian prime minister
Among the more than 30 Muslim leaders present for the summit are Syrian President Bashar al-Assad, Pakistani President Pervez Musharraf, and Prince Abd Allah bin Abdul Aziz of Saudi Arabia.
More controversially, Russian President Vladimir Putin, who has waged a brutal war against Muslim Chechnya, is attending the meeting as an observer.
Mahathir retires on 31 October after 22 years in power, and this gathering of the OIC is his valedictory appearance before the 57-member group.