Australia will consider recognising Jerusalem as Israel's capital and moving its embassy there from Tel Aviv, Prime Minister Scott Morrison says.
If acted upon, the move would follow a recent policy shift by the US that has drawn criticism internationally.
Mr Morrison said Australia remained committed to a two-state solution to the Israeli-Palestinian conflict.
Political opponents said Mr Morrison's comments were a "deceitful" ploy for votes ahead of a crucial by-election.
The status of Jerusalem is one of the most contested issues between Israel and the Palestinians.
US President Donald Trump drew international criticism last year when he reversed decades of American foreign policy by recognising the ancient city as Israel's capital. The US embassy was relocated from Tel Aviv to Jerusalem in May.
Mr Morrison said he would consult with his cabinet and other nations before making any decisions.
"We are committed to a two-state solution, but frankly, it hasn't been going that well - not a lot of progress has been made," he told reporters on Tuesday.
He said it may be possible for his nation to support a two-state solution and recognise Jerusalem as Israel's capital - something that Australia had "to date assumed" was unfeasible.
The prime minister said one future scenario could involve Australia recognising a Palestinian Authority capital in East Jerusalem and Israeli capital in West Jerusalem.
"Australia should be open-minded to this," Mr Morrison said.
Israeli Prime Minister Benjamin Netanyahu tweeted his approval on Monday.
Mr Morrison's predecessor, Malcolm Turnbull, had ruled out following the US in moving Australia's embassy to Jerusalem.
By-election issueOn Tuesday, Mr Morrison said his thinking had been guided by Australia's former ambassador to Israel, Dave Sharma.
Mr Sharma is the government's candidate in a by-election, to be held on Saturday, for the seat vacated by Mr Turnbull after he was ousted as prime minister.
If Mr Morrison fails to retain the Sydney electorate, Wentworth, he will be forced into minority government. He denied that his comments on Tuesday were aimed at Wentworth's large Jewish community.
But the Labor opposition's Senate leader, Penny Wong, said Mr Morrison was playing "dangerous and deceitful word games with Australian foreign policy".
"[Scott Morrison] is prepared to say anything if he thinks it will win him a few more votes - even at the cost of Australia's national interest," she said.
Source: BBC