Gilad, who is also the head of military policy and security at Israel's Defense Ministry, was sacked after he publicly criticized the prime minister for trying to include the release of a captured Israeli soldier as a pre-condition for a ceasefire deal in the Gaza Strip.
Olmert has replaced Gilad with long-time adviser, Shalom Turgeman, and the head of the internal security agency, Yuval Diskin.
Hamas is demanding the release of some 1,000 Gazans from Israeli prisons in return for the release of Corporal Gilad Shalit, who was abducted two years ago by Hamas.
Gilad will continue to head the Israeli Defense Ministry's Security-Diplomatic Bureau.
The Palestinians have been pushing to have a blockade imposed by Israel on the Gaza Strip lifted in exchange for a ceasefire. Last week, after Egypt announced a deal had been agreed between the sides, Israel's prime minister declared that the release of Shalit was a pre-condition in the truce negotiations.
More than 1,300 Palestinians were killed during Israel's three-week military operation in Gaza in December and January, which was launched by Tel Aviv to try and stop militants smuggling arms and firing rockets at southern Israeli towns from the Gaza Strip.
