Malcolm Turnbull has told the Palestinian prime minister that "the whole world yearns for a settlement", reiterating his view on the need for a two-state solution.
The prime minister had a detailed and friendly meeting with Rami Hamdallah in Ramallah on Wednesday.
The pair discussed efforts to bring both sides back to the negotiating table, with Mr Turnbull stressing his opposition to unilateral actions from either the Palestinians or Israelis.
They talked about the financial support and aid programs Australia provides to the Palestinian Territories, as well as the potential impact of the recent reconciliation of Hamas and Fatah on the peace process.
The war in Syria, Islamic State, trade, water, and energy were among the range of issues also discussed.
It was Mr Turnbull's final meeting before leaving Israel.
Earlier, he held talks with the Israeli President Rivlin and Opposition Leader Isaac Herzog, visited the Yad Vashem Holocaust Museum and planted a tree in the Grove of Nations.
Mr Turnbull was met by about a dozen protesters calling for a ban of live exports of sheep and cattle when he arrived at an event co-sponsored by the Australian Strategic Policy Institute and Begin-Sadat Centre for Strategic Studies in Tel Aviv.
"Israel against live shipments," one of the signs read.
The protesters chanted in both English and Hebrew as the prime minister arrived in his motorcade.