Asked by reporters, Arye Mekel, the number two Israeli diplomat, said: "We do not think we need any foreign forces."
"There is no need for any intervention of any foreign power," he added after Security Council debate on the situation in the Mideast.
He also said Annan had not informed his government of such a proposal.
Annan, in an interview with Haaretz, proposed sending an international peacekeeping force to act as a buffer between the Israelis and Palestinians in their 32-month-old conflict, which has cost more than 3,300 lives.
"We do not think there is merit in this issue," said Mekel, adding: "The only way to a solution is the two sides talking together."
The Israeli government always has opposed deployment of UN forces in the occupied territories but agreed to US observers as part of the roadmap plan.
Kieran Prendergast, under-secretary general for Political Affairs, said in his monthly report to the council that construction of a wall in the territories to separate Israelis and Palestinians "should be halted. As a minimum first step to alleviate its effects, humanitarian access points should be opened in those portions of the wall that have been completed."
"During the period since the last briefing, there was continuing significant destruction of Palestinian property by the IDF," Prendergast said.
"Agricultural lands, totalling some 477 acres of citrus trees and olive groves were bulldozed. In addition some 74 homes in the occupied Palestinian territory were destroyed, rendering more than 700 persons homeless."
