New South Wales Labor passed a resolution over the weekend urging federal Labor to support the 'unconditional' recognition of a Palestinian state.
The move, championed by former New South Wales Premier and former federal foreign minister, Bob Carr, brings the state in line with the majority of state Labor branches.
Only Victoria is yet to pass any resolution.
The motion is not binding on the Labor party federally.
But Executive Director of the Australia Israel and Jewish Affairs Council Colin Rubenstein says the motion is troubling and talk of statehood is premature.
"Look to recognise Palestinians as a state now defies reality, there is no such thing as a state according to international legal requirements."
Despite his opposition to the motion, Mr Rubenstein says a second clause which recognises the need for two states living side by side peacefully, is an improvement.
"Very very importantly what this resolution does then do, despite all it's obvious problems, it gives the Labor government and leadership scope to act independently in light of expert and legal advice, in terms of enhancing peace prospects, rather than working in a counter-productive way"
Labor leader Bill Shorten has played down the significance of the New South Wales motion, saying that peace would only come with two states.
"I think that the path towards peace in the middle-east will only come when Palestinians and Israeli's have two states and that's where it's got to go."
Izzat Abdulhadi is the Palestinian Authority's representative in Australia and the Pacific,.
He says Australia is a stakeholder in the issue.
"Australia is becoming a middle power. Australia has forces in Syria and Iraq. Australia is very interested in global issues. They're in the Middle East now, counter terrorism issue. It's for the vested interest for Australia actually to solve this problem. So we're facing a situation in which, just after a while we will be left with an apartheid system in Palestine. This is not for the best interest of all parties, actually, including Australia. "
Vic Alhadeff, from the New South Wales Jewish Board of Deputies, says he applauds the many moderate voices within Labor, but has this warning.
"That said, unconditional recognition of a state of Palestine gives the Palestinian leadership a free run without any of the responsibilities of statehood, such as an end of conflict, such as committing to living in peace alongside its neighbour, Israel.
Former Australian foreign Minister and state premier - Bob Carr - is leading the charge for change at a federal level.
"I think the unresolved problem of Palestine is a recruiting tool for murderous jihadists. And I think a Palestinian state is just on its own terms, but worth doing to remove that ground for recruitment that jihadists sometimes use."
He cites Australia's close relationship with Israel.
"We're seen by the Israelis as a 'rusted on' friend. So if we speak out and say, the spreading settlements, the cruelty of an occupation that's gone on for 50 years - these are wrong - then we get listened to. We get listened to. We've got a weight above what we might normally have in something as far away as the Middle East. And by the same token the Palestinians think - here's a country, close to Israel - it's actually encouraging us to continue on a peaceful path to nationhood. I think our historic closeness to Israel has given us an opportunity to have more influence than we otherwise would."
