Speaking at a Likud ministers meeting, Netanyahu said, "The matter is being discussed by us. Unfortunately, the deal is progressing in stages. It's a problematic and troubling matter.
"We must prepare for a new threat of rockets and missiles and we are working to provide a technological response to this issue through new military supplies," the prime minister told his party members.
Earlier Sunday, the Yedioth Ahronoth daily reported that Israeli officials were threatening to sell weapons to "areas of strategic importance" to Russia after Moscow announced over the weekend that it would go through with the sale of P-800 missiles to Damascus.
Russia's announcement came after both Israel and the US implored that it abandon the sale. The cruise missiles discussed, dubbed Yakhont, have a range of 300 km, which puts Israeli ships off of Lebanon's coast at risk of being hit by missiles fired from Syria's southern port.
The original deal was signed between Russia and Syria in 2007, but last month Prime Minister Benjamin Netanyahu called Russian President Vladimir Putin and requested that he call it off, for fear the missiles will be handed to Hezbollah.
More recently, Defense Minister Ehud Barak visited Moscow on a similar mission. Barak spoke with both Putin and Defense Minister Anatoly Serdyukov. During the visit, the statesmen signed agreements of confidentiality aimed at paving the way for the sale of Israeli drones to Russia.
Despite the extensive efforts, the deal was announced Friday to be proceeding as planned. "They've gone one step too far," one Jerusalem official said. "This is not in keeping with our cooperation with them."
The official said Israel had so far refrained from selling "strategic, tie-breaking weapons" to third-world countries, and that it expected Russia to do the same.
"The supply of advanced weapons to Syria, one of Hezbollah's two main supporters, especially on the eve of the fateful peace talks with the Palestinians, is not a move encouraging the moderate forces of the Middle East – but rather a prize for extremist states," the source said.
Itamar Eichner, Smadar Peri and AFP contributed to this report
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