The Israeli army says it wants to relocate Palestinians rather than move its barrier.
The statement was issued after consultations between Ehud Olmert and security chiefs.
Olmert has come under growing public criticism for failing to retaliate for more than 60 rockets fired by fighters in the Gaza Strip since a November 26 truce began, while also under US and European pressure to keep the ceasefire.
A 14-year-old boy was in critical condition and another, also 14, was seriously wounded by the rocket that on Tuesday slammed into a street near a house in the town of Sderot, a frequent target of rockets.
Islamic Jihad, a Palestinian armed group, claimed its forces had fired the rocket, and called it retaliation for Israel‘s continued military raids on its hideouts in the occupied West Bank.
The truce had halted Israeli-Palestinian fighting in and near the Gaza Strip, but Israel has continued raids it says are to prevent attacks from being launched from the West Bank.
Israel has killed 15 Palestinians since the ceasefire began, all but one in the West Bank. About half were armed men.