Recognising a Palestinian state is the Middle East's "only hope of breaking the endless cycle of violence", Foreign Minister Penny Wong says, urging all parties to return to the negotiating table as war continues to rage.
In a speech at Australian National University, Senator Wong said a secure and prosperous future for both Israelis and Palestinians would only come with a two-state solution.
"Recognising a Palestinian state - one that can only exist side by side with a secure Israel - doesn't just offer the Palestinian people an opportunity to realise their aspirations," she told a National Security College conference on Tuesday.
"It also strengthens the forces for peace and undermines extremism. It undermines Hamas, Iran and Iran's other destructive proxies in the region.
"This is why we are urging all parties to return to the table, and why we are engaging to support all efforts to advance a political process, including discussions between regional leaders."
Her comments come after Prime Minister Anthony Albanese indicated Labor's support for a two-state solution, and referred to UK Foreign Secretary David Cameron saying Britain would looking at recognising a Palestinian state, including at the United Nations.
Senator Wong said there was "widespread frustration" at the lack of progress towards a two-state solution - a Palestinian state in the occupied West Bank and in Gaza alongside Israel - since the Oslo Accords were signed in the early 1990s.
"So the international community is now considering the question of Palestinian statehood as a way of building momentum towards a two-state solution," Senator Wong said.
She ruled out Hamas having any role in leading a Palestinian state, instead that job should go to a reformed Palestinian Authority.
"There is no role for Hamas in a future Palestinian state. Hamas is a terrorist organisation which has the explicit intent of the destruction of the state of Israel and the Jewish people."
The foreign minister also again warned Israeli Prime Minister Benjamin Netanyahu not to carry out a planned ground offensive in the southern Gaza city of Rafah, which is the enclave's last refuge for displaced Palestinians.
"Again we say, do not go down this path," Senator Wong said.
The conflict in Gaza was triggered by Hamas' cross-border attack in southern Israel on October 7 left 1200 people dead, according to Israeli tallies, and more than 250 people taken hostage.
More than 33,000 Palestinians have been killed in six months of conflict, Gaza's health ministry says.
Most of the enclave's 2.3 million people are homeless and many at risk of famine.
