However, the Prime Minister insists nothing has changed on the government's position and "every innocent life matters, whether they be Israeli or Palestinian".

In a speech on Tuesday evening at the Australian National University, Senator Wong said a "secure and prosperous future for both Israelis and Palestinians will only come with a two-state solution," while rejecting claims that recognition is "rewarding an enemy".

Senator Wong did not announce a change in government position at the ANU. The minister said there would be "no role" for Hamas in a future Palestinian state, rather it would be led by a "reformed Palestinian Authority." And she hit out at Opposition Leader Peter Dutton, who she claimed "reflexively dismisses concern for Palestinians as 'Hamas sympathising'".

But the opposition foreign affairs spokesperson, Simon Birmingham, regards talk of Palestinian statehood after the Hamas attack on Israel on October 7 as "very dangerous and very concerning".

In a statement, the senator said to recognise a Palestinian state "puts statehood before security, and will be seen as a win by the terrorists who initiated the current horrific conflict".

He also argued that the basis for a lasting ceasefire would be when Hamas is convinced to "unconditionally and immediately release the up to 130 hostages who are still being held, and to agree to surrender terrorist infrastructure and capabilities in Gaza".

The Executive Council of Australian Jewry has criticised the minister's speech as "immensely disappointing".

Anthony Albanese said Australia has long had a position in favour of a two-state solution.

"Nothing has changed in our position there. That has been a stated position of past Australian governments as well," he told reporters in Ballina.

"We have said every innocent life matters, whether they be Israeli or Palestinian. We have unequivocally opposed the actions of Hamas on 7 October as the actions of a terrorist organisation. That organisation is outlawed for good reason and we have called for the immediate release of all hostages which have been held by Hamas. We have done that consistently."

Senator Wong had posed the issue of Palestinian statehood as it was "part of a broader debate within the international community right now".

She said it could provide a "pathway" towards a two-state solution. It is a suggestion she repeated on Wednesday.

"Ensuring that there is a pathway to peace emboldens moderates because it requires both sides to live side by side in peace," she told reporters in Canberra.

"And we need to find a way, a pathway to peace out of the current conflict. And we need to find a way to ensure that both the Palestinian people and the Israeli people can live in peace and security."

Deputy Opposition Leader Sussan Ley argued it was a "domestic" policy decision.

"What it is, is chasing Green votes here in Australia. It shows the division within the Labor Party and to make such a decision for domestic political purposes is not good for our national security," she told Sky News.

She said "everyone, from President Biden down" supports a future Palestinian state with a reformed Palestinian Authority but she said the problem is that the Palestinian Authority is "neither reformed nor in charge".

"Hamas is in charge in the Gaza Strip, and a decision like this by Australia watched from that region will be seen, I believe, only as emboldening the terrorists," Ms Ley said.

Meantime, Prime Minister Anthony Albanese has reached out to Muslim Australians as they mark Eid al-Fitr.

A statement notes it is normally a special time to "come together as a community in prayer, hospitality and generosity", but this year is different.

"This year the suffering in Gaza will mean many Muslim Australians will mark Eid al-Fitr with sorrow," the Prime Minister said.

"This is a difficult and anxious time for many, and I hope you can find some measure of comfort and strength among your family and friends and the expression of your faith."