The Israeli war cabinet voted on Friday to keep troops at the Philadelphi corridor which separates the Gaza Strip from Egypt in the event of any ceasefire deal with Hamas.
An Israeli official told the Haaretz newspaper that the decision "makes it more difficult to reach a deal".
Israeli Prime Minister Benjamin Netanyahu's insistence on keeping troops at the Philadelphi corridor, also known as the Salah al-Din corridor, and at the Netzarim corridor in the central Gaza Strip has stalled negotiations with Hamas, which demands a full Israeli withdrawal from the enclave as part of a ceasefire deal.
Eight members of the Israeli war cabinet voted in favour of the decision, while Defence Minister Yoav Gallant voted against and extremist National Security Minister Itamar Ben-Gvir abstained.
Israeli ministers claimed that the decision would force Hamas to compromise on the issue, saying that Hamas had previously accepted that the war on Gaza will not come to an end in the first phase of a hostage deal.
Netanyahu claimed that Hamas's surprise attack on Israel on October 7 was due to the fact that Israel was not in control of the Philadelphi corridor, allowing for weapons to be smuggled in.
However, families of the hostages expressed their anger at the decision saying that Netanyahu "doesn't miss an opportunity to guarantee there won't be a deal".
Gallant has warned that Israel could face a "multifront" war if a deal is not reached with Hamas, with more conflict taking place with Lebanon's Hezbollah and its backer Iran.
He presented the war cabinet with a document saying that Israel was at a "strategic crossroads" and that a deal with Hamas could calm the situation in the region and make war with Hezbollah less likely.
Netanyahu has been frequently accused in Israel of wanting to prolong the war against Gaza, which has so far killed over 40,000 Palestinians, for political gain.
"There is not a day that Netanyahu does not act to endanger the return of all the hostages. It wasn't urgent for the government of Israel to launch an attack on Philadelphi, Rafah and southern Gaza during the first months of the war," a statement from the Israeli Hostages and Missing Families Forum read.
Israeli negotiators arrived in Qatar on Wednesday for more talks with international mediators. However, a source within the delegation said, "unless there is some flexibility on these issues, it is doubtful that we will be able to secure the release of the hostages."