A US National Security Council meeting discussed the possibility of sanctioning two far-right Israeli ministers on Wednesday, three American officials told the Axios news site.
A decision was not reached on whether to sanction Bezalel Smotrich and Itamar Ben-Gvir, sources told the outlet.
The meeting addressed ways to deal with the "worsening security situation" in the Israeli-occupied West Bank, the report added.
White House officials had previously recommended that US President Joe Biden sanction the two extremist ministers, but the veteran politician did not believe Washington should do this to elected officials of democracies, an American official said.
Separately, support was unanimous on Wednesday for reversing a policy of labelling West Bank settlement products as being "made in Israel", according to the three officials.
Mike Pompeo, serving as then-president Donald Trump's top diplomat, announced the move in 2020.
The three officials said the session was to discuss options while decisions would ultimately be made by Biden.
Jack Lew, the US ambassador to Israel, suggested engaging with Smotrich in a bid to alter his behaviour instead of boycotting the extremist minister, according to the officials.
The US has sanctioned several "supporters and confidants" of Smotrich and Ben-Gvir, Axios said.
The International Court of Justice, the UN's highest court, issued an advisory opinion on Friday that said Israel's occupation of the West Bank was illegal.
It found that Israeli policies and practices had amounted to "annexation of large parts of the occupied Palestinian territory".
The US announced last week that it was sanctioning "three Israeli individuals and five entities connected to acts of violence against civilians in the West Bank" in its latest limited move.