Some 1.4 million people are sheltering in the southern city after fleeing the fighting between Israeli troops and Hamas in northern and central areas.
It is not clear what the “islands” will look like, or how they will operate.
But the military suggested that aid and temporary housing would be provided.
No timeframe has yet been given about when the operation could happen.
The UN and US have warned that a full-scale assault in Rafah could be disastrous.
Israel has repeatedly signalled its need for such an operation, insisting Hamas cannot be fully removed in Gaza without targeting Rafah.
It is conscious, too, that the group’s most senior leaders are still at large, almost certainly now in the southernmost part of the strip.
The Israeli military launched a campaign in Gaza after Hamas gunmen killed about 1,200 people in southern Israel on 7 October and took 253 other people hostage. Gaza’s Hamas-run health ministry says more than 31,300 people have been killed in the territory since then.
The chief spokesman of the Israel Defense Forces (IDF), Rear Adm Daniel Hagari, said in a briefing to journalists on Wednesday that they needed to make sure that all 1.4 million people currently living in Rafah, or “at least a significant amount”, would leave ahead of any offensive.
He suggested that they could move to “humanitarian islands that we will create with the international community”, where temporary housing, food and water would be provided.
But there are still plenty of logistical questions to answer.
Moving more than half of Gaza’s population from Rafah to the centre of the strip would take time, potentially weeks.
Cars are in short supply now, as is fuel for them, so most people would have to walk once again, carrying their belongings.
Palestinians are hungrier and weaker than they were five months ago, which would also make large-scale movement slow.
The central part of the strip where Israel proposes to relocate them has been badly damaged by repeated ground and air attacks.
The US Secretary of State, Antony Blinken, said he was yet to receive further details, but “needed to see a plan to get civilians out of harm’s way” of any ground operation in Rafah and ensure they had food, shelter and medicine.
Benny Gantz, a member of Israel’s war cabinet, had suggested a new military operation would begin in Rafah by the start of the Islamic holy month Ramadan if no new hostage release deal was agreed.
That did not happen, but Prime Minister Benjamin Netanyahu continues to reference it when he addresses the Israeli people.
“There is international pressure to prevent us from entering Rafah and completing the work. As prime minister of Israel, I reject this pressure,” Mr Netanyahu told soldiers at Ofer military base on Thursday.
“We will enter Rafah. We will complete the elimination of Hamas’s battalions. We will restore security and we will bring total victory for the people of Israel and State of Israel,” he added.
The IDF would also need to bolster its numbers again ahead of any new ground offensive. Many of the reservists who were called up in the early days of the war have now been released from duty, and would need to be brought back into operation.
Rear Adm Hagari told journalists that the IDF was also “trying to flood” Gaza with humanitarian aid by opening up multiple routes by land, sea and air.
He said US military experts were due to arrive in Israel this week to discuss with the IDF a US plan to build a floating dock and temporary pier off Gaza’s coast. It would be able to receive containerloads of food, water and medicine.
Mr Blinken emphasised that the floating dock, which will take between one and two months to become fully operational, would be “a complement to – not a substitute for – other ways of getting humanitarian assistance into Gaza”.
“In particular, overland routes remain the most critical way to get assistance in and then to people who need it,” he said.
The UN has warned that half a million people are on the brink of famine in Gaza.
Israel, as the occupying power, has the responsibility to see that food and medicine gets to civilians.
