Australia's international reputation would have been damaged had it decided to vote against upgrading the Palestinian status at the United Nations, a federal Labor MP says.
Left faction leader Doug Cameron, who personally raised the issue with Prime Minister Julia Gillard, is pleased Australia will abstain from a vote in the general assembly on a resolution to give the Palestinians observer status in the UN.
Australia was expected to join the United States and Israel in voting against the resolution.
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Ms Gillard initially wanted to oppose the resolution, but bowed to pressure from all but two of her cabinet colleagues.
Foreign Minister Bob Carr is said to have led the push against the prime minister's initial position.
Senator Cameron said Australia would have ended up "in a very bad position" globally had it decided to vote against the Palestinian bid.
"The problems that exist in Palestine are ones that need good friends of Israel but strong friends that are prepared to say to Israel enough is enough," he told reporters in Canberra on Wednesday.
"If you want a two-state solution, then we are going to take a balanced position."
Australia should now be "extremely strong" in voicing its opposition to Israel's settlement program, Senator Cameron said.
Cabinet minister Anthony Albanese, who is also a member of Labor's left faction, refused to say whether Ms Gillard was strong-armed by her foreign minister into withdrawing support for Israel.
"I don't talk about cabinet and you wouldn't expect me to break the law," he told ABC television.
"What we have here is the prime minister's (changed) position was endorsed at the caucus."
Senior opposition frontbencher Christopher Pyne said the decision broke the usual bipartisanship that existed between the coalition and Labor on the Middle East peace process.
The coalition and Labor have for decades supported Israel stating its right to exist, he said.
"The fact that they are abstaining on this shatters that bipartisanship," Mr Pyne told reporters.
He said members of the Labor caucus were right to be angry that Ms Gillard had been "rolled" by cabinet and caucus.
"There are people in the Labor caucus who have the right (correct) view," Mr Pyne said.
Others had "a wrong, leftist view" that had infected the caucus and the government.
Australian Greens leader Christine Milne said it was a mistake for Ms Gillard to oppose the bid, especially following Australia's election to the UN Security Council.
But the final decision to abstain was better than "just following along with the US" in supporting Israel.
