The announcement followed a trip by top U.S. officials to Saudi Arabia last week to advance a possible forging of formal relations between the Muslim powerhouse and Israel.
Opening the weekly Israeli cabinet meeting, Netanyahu appeared to sidestep the constitutional crisis that has roiled the country for seven months, denting its economy and shaking Western allies' confidence in its democratic health.
Instead, he promoted infrastructure initiatives including the "One Israel Project", which he described as designed to reduce travel time by train to the country's business and government centres to two hours or less.
The plan is basically a revival of an idea promoted for years, though little progress has been made. The government in 2010 approved a similar multi-billion shekel initiative for a nationwide network that did not gain traction.
"I would like to add that in the future we will also be able to transport cargo by rail from Eilat to our Mediterranean, and will also be able to link Israel by train to Saudi Arabia and the Arabian peninsula," he said in televised remarks.
"On this, too, we are working."
Israel's finance minister said the idea was to have the high-speed, north-south rail link ready in the next 10 years.
Writing by Dan Williams; editing by James Mackenzie and David Evans
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