Economy Minister Naftali Bennett has proposed that Israel annex parts of the occupied West Bank where most Jewish settlers live. The area is already under its full military control.
"I favour implementation of Israeli sovereignty over the zone where 400,000 [settlers] live and only 70,000 Arabs," said the head of the far-right Jewish Home religious party on Sunday.
The settlements, in occupied Palestinian territory, are deemed illegal under international law.
Bennett also ridiculed the US-brokered peace talks between Israel and Palestinian leader Mahmoud Abbas, whose writ covers the West Bank but not the Gaza Strip, which is ruled by Hamas.
"This is all a joke. It's as if we're discussing the purchase of a car with only half of its owners," he told public radio.
In another negative Israeli assessment of the peace process, Defence Minister Moshe Yaalon said on Saturday: "There is no partner on the Palestinian side to reach a two-state solution for two peoples."
Their views contrasted with a statement by US Secretary of State John Kerry on Friday at the end of his latest mission to Israel and the Palestinian territories.
"I believe we are closer than we have been in years to bringing about the peace and the prosperity and the security that all of the people of this region deserve," Kerry told reporters.
Direct negotiations were launched in late July, but have made little apparent progress as they approach the half-way mark of a targeted nine months.