Prime Minister Benjamin Netanyahu said on the first day of the academic year that "we need to set up a vacuum here to suck up the Israeli minds located at top universities abroad".
Netanyahu said a Jewish fund should be set up in order to attract Israeli and Jewish lecturers and researchers to Israel.
Government ministers were presented with data on Sunday according to which Israelis had been given foreign grants to occupy top slots at 40 different leading departments in some of the world's most prestigious universities.
"We are a small country with large pockets of Jewish money in the world and we have the Jewish mind," Netanyahu said. "Israel has universities and colleges that ought to be supported by this human wealth, which is among the best in the world."
He said US funds were "sucking up" the greatest minds, and that Israel should behave similarly in order to fight against the phenomenon.
Netanyahu's proposal is based on one previously offered by Minister for Minority Affairs Avishay Braverman, formerly the president of Ben Gurion University.
Braverman had proposed that the fund would be budgeted by global Jewish capital and would work with universities in Israel in order to make sure members of the local academia would not receive the short end of the stick.
"For months I have been saying that we must bring back the 300 Israeli scientists located at leading US universities such as Harvard and Princeton. Using a small investment that we will also gather abroad we can bring the best scientists to Israel," Braverman said, adding that the economic crisis gripping the US should be taken advantage of in order to "save the Israeli academia from the brain drain crisis".
The prime minister ordered the education minister and the head of the Knesset's budgeting and planning committee to file a bill to this effect within six weeks.