The zone would be about 2.5 km deep. "We must make sure that Palestinian militants won't act against us, this is my policy and my instructions", the premier said at a cabinet meeting, having returned to work from hospital where he was recovering from a stroke.
On Thursday a Palestinian attack with homemade rockets wounded four Israeli soldiers.
Israelis responded by firing artillery shells at the launch site in an empty field. One Palestinian was killed.
For their turn, Palestinian officials rejected the plan to set up a security zone outright. Palestinian police have been ordered to hold on to their positions. A spokesman for the Interior Ministry said the Palestinian Authority would "not yield to Israeli dictates and attempts to impose the zone by fire and bombardment".