Speaking on Israel Army Radio, Mr Vilnai said if Palestinians increased rocket fire, they will bring upon themselves a "shoah".
The BBC's Katya Adler in Jerusalem says many of Mr Vilnai's colleagues have quickly distanced themselves from his comments and also tried to downplay, them saying he did not mean genocide.
"We're getting close to using our full strength. Until now, we've used a small percentage of the army's power because of the nature of the territory," he added.
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