Benjamin Netanyahu singled out Australia and other European countries for signalling they could formally recognise Palestinian statehood during a United Nations General Assembly in New York in September.
He warned recognition of Palestine would not bring about peace in the Middle East.
"To have European countries and Australia march into that rabbit hole ... this canard, is disappointing and I think it's actually shameful," he said.
"(Australia) know what they would do if right next to Melbourne or right next to Sydney you had these horrific attacks."
Prime Minister Anthony Albanese has not laid out a timeline for recognition but has repeatedly said it was a matter of "when, not if".
Allies such as France, the UK and Canada plan to recognise Palestine at the UN gathering, so long as certain conditions, including that Hamas has no role in any government and the return of Israeli hospitals, are met.
While Australia has given thought to recognition in the context of a two-state solution that includes Israel, former New Zealand prime minister Helen Clark said the government has lagged other western nations.
Australia and New Zealand were among the signatories of a joint statement condemning Israel's plan to expand the war in Gaza and take control of all of the Gaza Strip.
"The most Australia and New Zealand have been able to stir themselves to do is to strongly reject the decision as well," Ms Clark told ABC radio on Monday.
"Australia and New Zealand are now beginning to lag behind key partners in the recognition of the state of Palestine."
The former NZ leader also said the fact that Israel was singling out Australia for criticism meant there was growing international pressure on the issue.
"Statements like that from Prime Minister Netanyahu indicate to me that some pressure is starting to tell on him," she said.
"The fact he's lashing out in this way suggests to me that even more pressure might start to get more results."
But Liberal senator and former ambassador to Israel Dave Sharma said recognising Palestine would make a ceasefire in the region even more difficult
"It's made Hamas less likely to reach a ceasefire," he told ABC radio.
"It's made Hamas be able to portray itself as making political progress because of its military action
"That is actually pushing back the resolution of this conflict, which I think has been a deeply unfortunate consequence."
After a shift in Australia's rhetoric in recent weeks on Palestine, international law expert from the Australian National University Donald Rothwell said Australia would likely join western nations in recognising Palestine.
"Everything at the moment is pointing towards Australia positioning itself to make an announcement of the recognition of Palestine by the time of the (meeting)," Prof Rothwell told AAP.
"The prime minister is also actually going to the United Nations General Assembly and it's a very long time since the Australian prime minister has gone there."
The Israeli government wants total victory in its war with Hamas, which attacked the nation's south in October 2023, killing about 1200 people and taking 251 hostages.
Israel's retaliatory assault on Gaza has killed more than 61,000 Palestinians, according to the Gaza health ministry.
