The Haaretz newspaper cited a foreign ministry spokesman as saying that Sotloff, 31, held dual citizenship, although the ministry made no immediate comment when contacted by AFP.
Public radio reported that Sotloff's family, who live in Miami, Florida, is Jewish and that he had studied in Herzliya, north of Tel Aviv.
The Islamic State made no reference to Sotloff being either Jewish or Israeli in the video it posted.
His masked executioner said the killing was in retaliation for expanded US air strikes against jihadist fighters in Iraq over the past week.