Israeli army radio reported on Sunday that Defence Minister Shaul Mofaz's decision came at an emergency meeting called in the wake of a bombing that killed four Israelis and the bomber in Tel Aviv.
It was not confirmed when the freeze would be lifted.
Israel will also reconsider whether to free 400 Palestinian prisoners as it had promised before the Tel Aviv bombing, Israeli radio said.
The radio quoted Justice Minister Tsipi Livni as saying Israel may not release the prisoners that were to have been freed in addition to 500 released last week, following a promise to Palestinian President Mahmud Abbas at an 8 February summit.
Mofaz blamed Syria for the attack and said officials would be sent abroad over the coming week to present Israel's cause against Syria.
"The defence minister ruled that Israel sees Syria and the Islamic Jihad movement as those standing behind the murderous attack in Tel Aviv," a statement from Mofaz's office said.
Islamic Jihad denial
But the resistance movement denied involvement in the attack. Speaking to Aljazeera early on Sunday, Islamic Jihad's Deputy Secretary-General Ziyad al-Nakhla said: "I assure you that no official statements, claiming responsibility for the operation, have been issued by either me or any other Islamic Jihad officials.
"I also assure you that we don't have any information about this operation, except for what has been reported on media organisations.
The bomber was identified as
21-year-old Abd Allah Badran
"I assure our commitment to the period of calmness agreed with the Palestinian Authority and we will continue sticking to this agreement," he added.
Nafidh Azzam, another official spokesman of Islamic Jihad, also denied the allegations. "We assure you that the Islamic Jihad movement is still committed to the period of calmness agreed with President Abu Mazin," Azzam said.
"There are some unknown circumstances," he said. "I assure you that none of Islamic Jihad's leaders has claimed responsibility for the Tel Aviv operation," he added.
Demands to Syria
Israeli officials have repeatedly demanded that Syria close the headquarters of Palestinian resistance groups in Damascus.
"The defence minister said in his summing-up that Syria continues to support and give patronage to terror groups carrying out attacks, something that endangers the continuation of the peace process with the Palestinians and the stability of the region," the statement said.
However, a Syrian Foreign Ministry official denied Damascus' involvement in the attack.
Speaking to Aljazeera's correspondent in Syria, the official said the Islamic Jihad's bureau in Damascus was currently closed.
Nevertheless, an Israeli official said the army had attacked Syrian targets in the past and would do so again if it felt this would stop Damascus-based groups from attacking Israeli targets.
Accusing Syria of being behind the weekend bombing, Deputy Defence Minister Zeev Boim said an Israeli attack would "send a message to [Syrian President Bashar] al-Asad" that he had to clamp down on Islamist groups based in Damascus.
No diplomatic progress
Meanwhile, Palestinian leader Mahmud Abbas met cabinet ministers and security chiefs on Saturday to discuss a response to the attack.
Four people died in Friday's
bombing in Tel Aviv
Palestinian security forces have arrested two suspected fighters in connection to Friday's attack. The arrests were on orders from Abbas, who called the attack "sabotage".
Israeli Prime Minister Ariel Sharon also urged Abbas on Sunday to "wipe out" resistance groups before peacemaking could resume.
"There will not be any diplomatic progress, I repeat, no
diplomatic progress, until the Palestinians take vigorous action
to wipe out the terror groups and their infrastructure in the
Palestinian Authority's territory," Sharon told his cabinet.
The bomber was identified as 21-year-old university student Abd Allah Badran, from a village near the West Bank town of Tulkaram.
Separately, Israeli occupation forces arrested five Palestinians during raids into Atil and Alar villages near Tulkaram city north of the West Bank, Aljazeera's correspondent in TulKaram, Muain Shadid, reported.
A lieutenant in the Palestinian intelligence services was among those arrested, the correspondent said. The other four were close to the Islamic Jihad movement, he added.
More than 15 Israeli military vehicles raided Alar village and arrested two Islamic Jihad activists. Israeli forces reinforced their deployment in all Tulkaram areas, particularly in its northern districts.
The forces closed al-Kafriat crossroads in southern Tulkaram, the main gate of the city, obstructing the citizens' movement into the city or other nearby governorates.