Yvette Cooper told the United Nations the recognition of Palestinian statehood was intended as a means of "protecting the pathway to peace".
Speaking at the UN General Assembly, the foreign secretary said the two-state solution was in "profound peril" and is at risk of "disappearing beneath the rubble."
"That is what extremists on all sides want," she said. "But we refuse to let hope be lost."
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She acknowledged the "unimaginable anguish" of families whose loved ones are still held hostage by Hamas following the barbaric October 7th attacks.
But she accused the government of Benjamin Netanyahu of worsening the "unbearable humanitarian catastrophe" in Gaza by "choosing to escalate war and hold back aid."
"Children dying of starvation while food rots at the border," she said.
"And settlement expansion threatens the very viability of a Palestinian state."
She added: "Recognition is about the future, but it is rooted in our past. 75 years ago Britain was rightly proud to recognise the state of Israel, but the promise of upholding Palestinian rights has gone unfulfilled.
"For decades my country supported a two state solution but only recognised one state. That changes now as we join more than 150 member states in recognising the state of Palestine and protecting the pathway to peace."
Earlier, world leaders and international diplomats broke into applause during President Emmanuel Macron's speech to the high-level meeting, as he announced France would recognise Palestinian statehood.
"We've gathered here because the time has come," Mr Macron said. "The time has come to free the 48 hostages detained by Hamas. The time has come to stop war, the bombing in Gaza, the massacres and the fleeing people.
"The time has come because it is a pressing urgency everywhere. The time for peace has come because we're just a few moments away from being able to seize peace."
He went on: "We must do everything within our power to preserve the possibility of a two-state solution. Israel and Palestine living side by side in peace and security.
"The time has come. This is why, true to the historic commitment of my country to the Middle East, to peace between the Israelis and the Palestinians, this is why I declare that France recognises the state of Palestine."
Mr Macron said he would open a French embassy to Palestine once all Israeli hostages have been released by terror group Hamas.
And he told Israel that France, and other European partners, would going forward be "pegging" support for Israel to the "measures Israel will be taking to put an end to the war and negotiate peace."
He added: "It's thanks to this path that we will get a state of Palestine that is sovereign, independent and demilitarised. Bringing together all of its territories, recognising Israel and being recognised by Israel."
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