"Given the close relations between the United States and Israel, there are things we cannot do, and that is unacceptable for us," Netanyahu said at a meeting of his Likud party.
Netanyahu said he had asked for the reports to be verified.
The New York Times reported last week that in monitoring more than 1,000 targets in upwards of 60 countries between 2008 to 2011, US and British intelligence agencies tapped the communications of then premier Olmert, among other foreign leaders, according to secret documents revealed by intelligence contractor Edward Snowden.
Israel and its close strategic ally had agreed not to spy on each other following the 1985 arrest in Washington of former US Navy analyst Jonathan Pollard, who gave Israel thousands of secret documents about US espionage in the Arab world.
A US court sentenced Pollard to life imprisonment, and reports that the Americans also spied on its friends brought fresh calls for his release.
A day earlier the Israeli leader told his cabinet the efforts to obtain Pollard's release were "neither conditional on, nor related to, the latest events, even though we have given our opinion on these developments," without elaborating.
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