The announcement came after heavy international criticism, including from the U.S., of Israeli intentions to move ground forces into the city that borders Egypt.
Rafah had a prewar population of roughly 280,000, and according to the United Nations is now home to some 1.4 million additional people living with relatives, in shelters or in sprawling tent camps after fleeing fighting elsewhere in Gaza.
Israel says that Rafah is the last remaining Hamas stronghold in Gaza after more than four months of war.
"It is impossible to achieve the goal of the war of eliminating Hamas by leaving four Hamas battalions in Rafah," Netanyahu's office said.
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