Anthony Albanese on Monday confirmed Australia would back recognition of a state of Palestine at a United Nations General Assembly meeting in New York in September.
The move brings Australia into line with allies such as the United Kingdom, France and Canada, which have already outlined similar plans for recognition.
Mr Albanese deflected criticism that recognition would do little on the ground in Gaza, saying a different approach is needed to end the conflict.
"This is the best opportunity that there is out of a crisis to actually provide a long-term solution," he told Seven's Sunrise program on Tuesday.
"To continue to do the same thing is not enough."
The prime minister said the international community was sending a message, in recognising a Palestinian state, that the status quo in the Middle East could not continue.
"The international community are saying we need to find a solution that provides security for the state of Israel but also recognises the legitimate aspirations of the Palestinian people for their own state," he said.
Foreign Minister Penny Wong said statehood would give the Palestinian people a sense of hope for the future.
"We know this is a hard road to walk, but the alternative is to accept where we are, and I think the international community is saying to both the Israeli and Palestinian peoples we have to find a different path," she told ABC radio.
"The practical steps for recognition will be tied to the commitments that the Palestinian Authority have made."
The commitments include the assurance that Hamas, which has been designated a terrorist organisation and controls Gaza, will play no role in any future government.
Israel has criticised the move, saying it will be counterproductive to peace in the Gaza Strip and its demands for the release of Israeli hostages.
Israel's Ambassador to Australia Amir Maimon said Palestinian recognition would "not change the reality on the ground".
Liberal MP Tim Wilson, whose Victorian seat of Goldstein includes Jewish voters, says Mr Albanese's decision is "actually immoral".
"We can't have a situation where we have a government that is kowtowing, literally, to the ambitions of ... terrorists," he told Nine's Today show, referring to Hamas.
"They're essentially handing over the keys to the kingdom.Â
"What they've done is actually immoral."
French President Emmanuel Macron praised the decision by Australia on social media, saying it showed a commitment to a two-state solution, which includes the state of Israel.
More than two million Palestinians face severe food insecurity, based on United Nations projections.
At least 90,000 protesters marched across the Sydney Harbour Bridge earlier in August to call on the government to sanction Israel.
The crisis in Gaza began when Hamas attacked Israel on October 7, 2023, killing 1200 people and taking about 250 more hostage.
Israel's military response has since killed more than 61,000 people, according to Gaza's health authorities.
Israel has denied the population is suffering or dying from starvation, even though it has throttled the flow of aid to Gaza for months, international human rights groups have said.
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