Benjamin Netanyahu spoke three days after U.S. Secretary of State John Kerry said progress has been made toward a resumption of Israeli-Palestinian negotiations, stalled for five years.
Kerry has invited Israeli and Palestinian negotiators to Washington for preliminary talks, though wide gaps remain on the framework of the actual negotiations.
Netanyahu said Monday that a referendum is necessary to prevent a rift in Israeli society.
Polls have suggested a majority of Israelis support the establishment of a Palestinian state alongside Israel, but many groups are vehemently opposed, including hard-liners among Israel's West Bank settlers. Some issues to be settled in a peace deal are particularly explosive, including a partition of Jerusalem, home to major religious shrines and claimed by both sides as a capital.
Peace talks would also determine Israel's borders with a future Palestine and the fate of Palestinian refugees and their millions of descendants.
Netanyahu said he would present legislation on a referendum to his Cabinet and parliament soon.
"Any agreement that is not approved by the people is not worthy of being signed," Netanyahu said in an announcement from Israel's parliament. On an issue as fateful as a peace deal, "it is desirable that it be presented to every single citizen to decide," he said.
Earlier Monday, one of Netanyahu's main coalition partners, Economics Minister Naftali Bennett of the pro-settler Jewish Home Party, linked crucial support in an upcoming vote on the government budget to progress on a referendum bill.
"The Jewish Home will support the state budget, but in order for that happen we demand the referendum law is being promoted by then," Bennett said.
Netanyahu's second main coalition partner, the centrist Yesh Atid party, has said it is studying the idea. Israel's chief negotiator with the Palestinians, Justice Minister Tzipi Livni, has said she opposes a referendum, insisting that important decisions should be left to democratically elected leaders.
Israeli media said Netanyahu will convene his Cabinet later this week to seek formal backing for a resumption of talks and for a possible release of dozens of Palestinian prisoners in several stages during the negotiations — a proposal bound to trigger vehement opposition from hawks in the coalition, including in his own Likud.
Government spokesman Mark Regev said he was not aware of plans for a Cabinet meeting on the peace talks.
Israeli analyst Yossi Alpher said pushing the referendum bill is an attempt by Netanyahu "to neutralize internal opposition from the right as early as possible."
Palestinian President Mahmoud Abbas also said in comments published Monday he would put any peace deal to a referendum, reiterating a long-standing position. He did not say whether the vote would include millions of Palestinians scattered across the globe or only those in the West Bank, Gaza and east Jerusalem — the lands captured by Israel in the 1967 Mideast war and sought for a Palestinian state.
Speaking to the Jordanian daily Al Rai, Abbas warned that "all options are open" if Kerry's efforts fail — an apparent attempt to pressure Israel to accept the Palestinian terms for a resumption of talks.
Abbas did not list other options but suggested a renewed Palestinian push for U.N. recognition, a tactic Israel fears could increase its international isolation.
In announcing progress Friday, Kerry said a broad agreement has been reached on the framework for restarting talks, but that Israeli and Palestinian negotiators still need to work out some details once they get to Washington.
Palestinian officials say key issues still need to be resolved before actual peace talks can begin. They insist on a freeze in construction in Israeli settlements, and they want Netanyahu to accept Israel's pre-1967 war lines as a starting point and release dozens of veteran Palestinian prisoners.
Netanyahu has refused to start border talks from the 1967 lines. He has also rejected a settlement freeze, though Palestinian officials have said he is willing to slow construction in some areas without a public announcement.
The Israeli anti-settlement group Peace Now said the Netanyahu government has advanced plans for more than 5,000 new apartments in settlements in the West Bank and east Jerusalem in the past four months.
Without new restrictions, "construction in settlements will continue and it will continue at a relatively fast speed," said Hagit Ofran of Peace Now, calling for a halt in construction.
Regev declined comment.