Zeev Boim, the deputy defence minister, confirmed on Thursday that the idea of severing electricity supplies to Gaza has recently been discussed in the wake of the rocket attacks.
All of Gaza's electricity is supplied by Israel.
"A serious escalation in violence on the part of the Palestinians could bring about this measure in the future, although I hope not," Boim told Israeli radio.
"This idea has been shelved for the immediate future as its impact on an important civilian population is problematic."
Although there were no Israeli fatalities in the latest batch of rocket attacks, five soldiers were slightly wounded and the country's sixth-largest city came under attack.
The main Palestinian armed groups have been observing a ceasefire since the start of the year, while Israel had largely held off arrest operations in the West Bank except against members of the Islamic Jihad movement.
The unofficial deal, however, appears to be unravelling fast, with Israel voicing fears of an explosion in Palestinian violence before legislative elections in five weeks' time.
Three Palestinians were killed in the northern West Bank city of Nablus, including a leader of the leftist Popular Front for the Liberation of Palestine (PFLP) and two members of the Al-Aqsa Martyrs Brigades, an armed offshoot of the ruling Fatah faction.
The three were killed as they tried to break out of a building besieged by Israeli troops.
It was not immediately clear which Palestinian faction was behind the latest rocket attacks into southern Israel, launched from northern Gaza.
One of the Qassam rockets, which take their name from the armed wing of the Islamist movement Hamas, lightly wounded five Israeli soldiers when it landed on their base near the border.
That attack came hours after another of the missiles exploded near an industrial zone in the southern Israeli city of Ashkelon, which lies around 10km north of Gaza, but without causing injuries.
"The state of Israel should order the IDF (army) to hit the terror infrastructure in a combined aerial and ground operation to bring back security to Israeli citizens"
Ehud Yatom, MP for the right-wing Likud party
The rocket landed next to a fence around an electricity station that supplies a large part of southern Israel.
It is the third time in less than a week that a Qassam rocket has landed on the outskirts of Ashkelon.
While towns bordering Gaza have been regular targets, the notoriously inaccurate missiles had rarely reached Ashkelon.
Witnesses and medics said that the army responded to the latest attack by pounding an uninhabited area of the territory with artillery fire.
No Palestinian faction has claimed
rocket attacks into Israel
Locals said a 21-year-old Palestinian had been killed in the shelling in the Bait Lahiya area, but the interior ministry said it was investigating to see whether he had been killed when a device that he had been handling exploded.
The army, which withdrew all its ground troops from Gaza in September, confirmed firing on the area but had no details on casualties.
Ariel Sharon, the prime minister of Israel, has previously pledged that he would not allow Ashkelon to become a "frontline" city in the conflict with the Palestinians and to respond with an iron fist to attacks now that Israel has left Gaza.
The government has so far rejected any idea of reinvading Gaza but calls for such action are growing.
Ehud Yatom, a former head of the internal security service Shin Beth and now an MP for the right-wing Likud party, said it was time to send troops back in.
"The state of Israel should order the IDF [army] to hit the terror infrastructure in a combined aerial and ground operation to bring back security to Israeli citizens," Yatom was quoted as saying by the website of Yediot Aharonot newspaper.