"We intend to," Netanyahu said in an interview with Fox News when asked if Israel would take over the entire coastal territory.
"We don't want to keep it. We want to have a security perimeter. We don't want to govern it. We don't want to be there as a governing body."
He said that Israel wanted to hand over the territory to Arab forces that would govern it.
Netanyahu made his comments to Fox News before the outcome of a meeting he was due to have on Thursday with a small group of senior ministers to discuss plans for the military to take control of more territory in Gaza.
The security cabinet session follows a meeting this week with the head of the military, which Israeli officials have described as tense, saying the military chief had pushed back on expanding the campaign.
Opinion polls show that most Israelis want the war to end in a deal that would see the release of the remaining hostages held by Hamas-led Palestinian militants.
Netanyahu's government has insisted on total victory over Hamas, which ignited the war with its deadly October 2023 attack on Israel from Gaza.
The idea, pushed especially by far-right ministers in Netanyahu's coalition, of Israeli forces thrusting into areas they do not already hold in the enclave has generated alarm in Israel.
The mother of one hostage urged people on Thursday to take to the streets to voice their opposition to expanding the campaign.
The Hostages Families Forum, which represents captives held in Gaza, urged the military Chief of Staff Eyal Zamir to oppose widening the war and the government to accept a deal that would bring the war to an end and free the remaining hostages.
Defence Minister Israel Katz said on Wednesday that the military would carry out the government's decisions until all war objectives were achieved.
Israeli leaders have long insisted that Hamas be disarmed and have no future role in a demilitarised Gaza and that the hostages be freed.
The UN has called reports about a possible expansion of Israel's military operations in Gaza "deeply alarming" if true.
There are 50 hostages still held in Gaza, of whom Israeli officials believe 20 are alive.
Most of those freed so far emerged as a result of diplomatic negotiations.
Talks toward a ceasefire that could have seen some more hostages released, collapsed in July.
A senior Palestinian official said Hamas had told Arab mediators that an increase in humanitarian aid entering Gaza would lead to a resumption in ceasefire negotiations.
Israeli officials accuse Hamas of seizing aid to hand out to its fighters and to sell in Gaza markets to finance its operations, accusations that the militant group denies.
Videos released last week of two living hostages showed them emaciated and frail, stirring international condemnation.
The Israeli military says it controls about 75 per cent of Gaza.
Most of Gaza's population of about two million has been displaced multiple times over the past 22 months.
Aid groups are warning that the enclave's residents are on the verge of famine.
"Where should we go? We have been displaced and humiliated enough," said Aya Mohammad, 30, who, after repeated displacement, has returned with her family to their community in Gaza City.
"You know what displacement is? Does the world know? It means your dignity is wiped out, you become a homeless beggar, searching for food, water and medicine."
Close to 200 Palestinians have died of starvation in Gaza since the war began, nearly half of them have been children, according to Gaza's health ministry.
About 1200 people were killed and 251 hostages taken to Gaza in the October 7, 2023 Hamas attack on southern Israeli communities.
More than 61,000 Palestinians have been killed by Israel's assault on Gaza, according to the Gaza health ministry, which said 98 Palestinians have been killed by Israeli fire across the enclave in the past 24 hours.
