Foreign Minister Penny Wong has held a "very positive, constructive meeting" with her Israeli counterpart after Australia's position returned to referencing "occupied Palestinian territories".
The government is strengthening its opposition to settlements, affirming them as illegal under international law.
Speaking from New York on Friday, Senator Wong described her meeting with Israeli Foreign Minister Eli Cohen as "very positive" and "constructive".
"Obviously, I reiterated Australia's friendship with Israel, I reiterated our long standing position that we wish to see a just and enduring two-state solution," she told reporters.
"We believe that's in the interests of both Israeli and Palestinian peoples.
"We've expressed publicly our concern about some of the developments in Israel, but it was a very constructive and cordial meeting."
Labor's move to switch Australia's position to that of past governments, matches the United Nations Security Council resolutions and the United Kingdom, New Zealand and European Union.
The government maintains the position that Jerusalem is a final status issue that should be resolved as part of any peace negotiations between Israel and Palestinians.
This reversed the Morrison government’s recognition of West Jerusalem as the capital of Israel.
Australia's embassy is in Tel Aviv.
