"There is a danger that we will be exposed to an international boycott as was the case before the fall of the regime in South Africa," Justice Minister Tommy Lapid told Sunday's cabinet meeting, his spokesman Tzahi Moshe said.
Lapid, who is also a deputy prime minister and leader of the centrist Shinui party, said the government should "have another look" at the route of the apartheid wall, which has attracted international condemnation as it cuts deep into Palestinian territory.
The UN General Assembly last month asked the International Court of Justice (ICJ) in The Hague to rule on the legal consequences of the barrier. Hearings are scheduled to begin on 23 February.
Israeli Prime Minister Ariel Sharon's coalition government insists that the apartheid wall, which it calls a "security fence", is essential to prevent attacks on Israeli territory by Palestinian fighters.
But the Palestinians see the montage of barbed wire fencing, trenches and concrete as an attempt to pre-empt the boundaries of any future two-state settlement and grab some of their most fertile land.
Wall 'blocking peace'
US President George Bush has said that the apartheid wall is undermining confidence in the Middle East process and the internationally-drafted "road map" for peace.
The road map has stuttered to a halt in recent months amid accusations by both sides that each is failing to meet its commitments.
Justice Minister Tommy Lapid says
Israel should rethink wall's route
Under the terms of the blueprint, Israel is obliged to tear down all settlement outposts erected since Sharon came to power in March 2001 but only a handful have so far been removed and new ones have sprung up.
Sharon ordered the evacuation of two more outposts on Sunday but settlers immediately accused their former champion of threatening "the future of Zionism".
The government also granted permission on Sunday for nearly 30,000 Palestinians living in the West Bank and Gaza Strip to resume work in Israel.
Meanwhile, the funeral was held Sunday morning for a Palestinian teenager who died of his injuries after being shot during a funeral procession on Saturday.
Around 400 people attended the service for 18-year-old Muhammad al-Masri, who was the fourth Palestinian to be killed by Israeli occupation troops in three separate incidents in Nablus on Saturday.
Palestinian Prime Minister Ahmad Quraya condemned the international community's "silence" over events in Nablus.
"Whenever the Palestinians carry out any attacks or operations against Israel they are condemned by the whole world but when Israel carries out attacks against our people, the international community stays silent," he told Voice of Palestine radio.