Major-General Yoav Galant, head of Israel's southern command, said he was considering a range of options, including the possibility of re-entering Gaza.
Galant told the Maariv daily on Friday: "We're talking about more aggressive military activity. If the price we have to pay becomes unreasonable as a result of increased (Palestinian) attacks, then we shall have to take all steps, including occupying the Gaza Strip.
"It could be anything from a partial occupation of the Gaza Strip to a full occupation."
He said his plans had already been approved by senior officials, including Shaul Mofaz the Israeli defence minister.
The Haaretz newspaper quoted senior army commanders on Friday as saying troops were being trained for an offensive in the Gaza Strip as part of contingency plans the army had drawn up.
But the newspaper quoted the commanders as saying such an operation was unlikely to be implemented in the near future as it could undermine international backing for Israel since Hamas took over the Palestinian government on March 29.
"It could be anything from a partial occupation of the Gaza Strip to a full occupation"
Major-General Yoav Galant,
Head of Israel's southern command
Galant said: "I wouldn't want to reach that situation, but if it's forced upon us we have a plan to occupy the strip.
"We are in advanced stages of preparing forces for readiness. There is a practical plan and there are forces which are designated for specific operations and are training for them."
An army spokeswoman said 300 rockets had been fired into Israel since Hamas won a January 25 Palestinian election compared to 100 rockets fired in the five months between September and late January.
The homemade rockets cause panic but few casualties.
Dan Halutz, Israel's army chief, preferred airforce missile strikes against militants in Gaza as well as artillery fire on areas near the Gaza-Israel border used by militants to fire rockets into Israel, Haaretz said.
The strikes on Gaza have killed 20 Palestinians, mostly militants, since the start of April. Among them was a seven-year-old girl killed when an artillery shell hit a house in the northern Gaza town of Beit Lahiya.
Haaretz quoted an army officer as saying the break in security co-ordination between Israel and the Palestinian security forces since Hamas' rise to power had eliminated a mechanism for resolving problems without violence.
Israel's Gaza withdrawal ended
38 years of military occupation
"There is no-longer anyone to mediate during a flare-up, neither the Egyptians nor the Americans. Consequently, they speak with Qassams (rockets) and we respond with 155mm shells," it quoted the officer as saying.
Israel withdrew from Gaza last summer, ending 38 years of military occupation and is reluctant to go back after spending millions of dollars to withdraw and overcoming staunch political opposition.
In addition, Israel is pleased with the international pressure on Hamas and fears military action could jeopardise that.
Although Hamas has been observing a truce with Israel for more than year, it has said it will not prevent other groups from carrying out attacks. Hamas said a suicide bombing in Tel Aviv this week was justified.
Israel says it holds Hamas responsible for the violence, though it is holding off direct military action against the group for the time being.