"In the long-term, we will have to topple the Hamas regime," he said.
"In the short-term ... there are a wide range of possibilities, from doing nothing to doing everything, meaning to conquer Gaza."
Netanyahu was speaking as he visited a house in Sderot in southern Israel which was hit by a rocket on Sunday.
No one was injured in that attack, but the Israeli military said a farmer near Gaza was lightly wounded by another home-made rocket.
The Israeli army said Palestinian fighters have fired nearly 60 rockets and mortar shells at Israel since the Egyptian-brokered ceasefire with Hamas ended on Friday.
Israel's government has threatened to strike back hard.
Ehud Olmert, the Israeli prime minister, said at his cabinet's weekly meeting on Sunday: "The scenarios are clear, the plans are clear, the determination is clear, and so are the ramifications of each of the steps.
"A responsible government is not happy to go to war, but does not evade it," he said.
Israel carried out two air raids aimed at rocket launchers in Gaza on Sunday, without any casualties, the military and Palestinian officials said.
The Palestinian Islamic Jihad group has claimed responsibility for most of the rocket fire since the end of the truce.
Abu Ahmad, spokesman of the group, said Israeli citizens would "not sleep peacefully as long as Gaza children are not enjoying water, electricity, medicine and peace".