A Foreign Ministry spokesman called the suggestion a "half-solutions" that would perpetuate the cycle of conflict rather than resolve it permanently.
"Any proposals that circumvent the constants of the Egyptian and Arab position, and the sound foundations for dealing with the core of the conflict, which relates to Israel's withdrawal from the occupied Palestinian territories and the establishment of an independent Palestinian state are unacceptable," ministry spokesman Tamim Khallaf said in a statement.
"These proposals are half-solutions that would only reignite the conflict rather than resolve it conclusively," he added.
The spokesman reaffirmed the fundamental connection between Gaza and the occupied West Bank, including East Jerusalem, as part of the Palestinian territories that constitute a future Palestinian state.
He stressed that these areas must fall under full Palestinian sovereignty and administration.
On Tuesday, Lapid proposed that Egypt assume control of Gaza for up to 15 years in exchange for the cancellation of its more than US$150 billion worth of foreign debt.
Lapid made the proposal during a speech at the Foundation for Defense of Democracies (FDD) in Washington and later posted it on X, according to the Israeli daily Maariv.
Lapid claimed that during the 15 years, "Gaza will be rebuilt and the conditions for self-government will be created. Egypt will be the central player and will oversee the reconstruction, which will further strengthen its economy."
Egypt held the Gaza Strip for nearly two decades following Israel's creation in 1948, when Jewish militias seized Palestinian land and committed massacres that displaced hundreds of thousands.
The Palestinian group Hamas has rejected any plans to disarm or be removed from Gaza, stressing that the enclave's future must be determined through a national Palestinian consensus.
Israel continues to occupy Palestinian, Syrian, and Lebanese territories and refuses to withdraw or recognise an independent Palestinian state with East Jerusalem as its capital within the pre-1967 borders.
A ceasefire and prisoner exchange agreement has been in place in Gaza since last month, pausing the Israeli war, which has killed nearly 48,350 people, mostly women and children, and left the enclave in ruins.
Last November, the International Criminal Court issued arrest warrants for Israeli Prime Minister Benjamin Netanyahu and his former Defence Minister Yoav Gallant for war crimes and crimes against humanity in Gaza.
Israel also faces a genocide case at the International Court of Justice for its war on the enclave.
-- BERNAMA
