Ehud Olmert's choice avoids the risk of high-level resignations that might have arisen after an independent inquiry.
"The government, headed by myself, will appoint an investigative committee," Olmert said.
"The committee will be charged with examining the government's functioning in taking decisions and all that it sees as fit."
Olmert has been facing calls for a thorough, independent inquiry over the army's preparedness for the war it mounted against Lebanon, the government's conduct of the 34 days of fighting and, ultimately, the failure to defeat Hezbollah.
But he said that he did not wish to expose the army, heavily criticised for its performance, to an external inquiry. Instead, the military would carry out its own investigation, he said.
Olmert said that the decision to go to war had been his alone, and admitted to shortcomings in how the war had been pursued. Initially, Israeli officials had talked about the conflict lasting only days, not more than a month.
"I want to make one thing clear, the responsibility for the decision to go to war ... is entirely mine," he said.
"I know there are controversies about the degree of success that perhaps was due to early expectations."