The UK will recognise a Palestinian state in September unless Israel takes "substantive steps to end the appalling situation in Gaza", Sir Keir Starmer has said.
The PM said Israel must also meet other conditions, including agreeing to a ceasefire, committing to a long-term sustainable peace that delivers a two-state solution, and allowing the United Nations to restart the supply of aid, or the UK would take the step at September's UN General Assembly.
Israeli prime minister Benjamin Netanyahu said the move "rewards Hamas's monstrous terrorism".
The UK government has previously said recognition should come at a point when it can have maximum impact, as part of a peace process.
However, the PM has been under growing pressure - including from his own MPs - to act more quickly.
Last week France also announced it would officially recognise a Palestinian state in September - the first of the G7 group of the world's richest countries to do so.
Giving a news conference after holding an emergency cabinet meeting, Sir Keir said he was announcing the plan now because of the "intolerable situation" in Gaza and concern that "the very possibility of a two-state solution is reducing".
He told reporters that the UK's goal of "a safe secure Israel alongside a viable and sovereign Palestinian state" was "under pressure like never before".
The PM added that his "primary aim" was to improve the situation on the ground in Gaza, including ensuring that aid gets in.
In outlining the steps UK wanted the Israeli government to take, Sir Keir also said it should make clear there will be no annexations in the West Bank.
The current Israeli government is opposed to progress towards a two-state solution so it is highly unlikely to agree to the conditions.
Meanwhile, Sir Keir said Hamas must immediately release all hostages, sign up to a ceasefire, disarm and accept that they will play no part in the government of Gaza.
In response to the announcement Netanyahu wrote on social media: "A jihadist state on Israel's border TODAY will threaten Britain TOMORROW.
"Appeasement towards jihadist terrorists always fails. It will fail you too. It will not happen."
Asked if he knew the PM's statement was coming, Donald Trump said the pair "never discussed it" during their meeting on Monday, when the US president was in Scotland.
He told reporters: "You could make the case... that you are rewarding Hamas if you do that. And I don't think they should be rewarded."
The US - along with many European nations - has said it would only recognise a Palestinian state as part of moves towards a long-term resolution to the conflict.
Liberal Democrat leader Sir Ed Davey welcomed the government's announcement as "a crucial step" but urged the PM to recognise a Palestinian state immediately, and pursue "far greater action to stop the humanitarian disaster in Gaza".
He added: "Rather than use recognition, which should have taken place many months ago, as a bargaining chip, the prime minister should be applying pressure on Israel by fully ceasing arms sales, and implementing sanctions against the Israeli cabinet."
Some 255 MPs have signed a letter calling for the government to immediately recognise a Palestinian state - including more than half of Labour MPs.
Labour MP Sarah Champion, who coordinated the letter, said she was "delighted and relieved" at the announcement.
"This will put political pressure on Israel and make clear what's happening in Gaza and the West Bank is totally unacceptable," she said.
"However, I'm troubled our recognition appears conditional on Israel's actions.
"Israel is the occupier, and recognition is about the self-determination of the Palestinian people. The two should be separate."
The Conservatives and Reform UK have said now is not the right time to take the step, arguing this would reward Hamas for their attack on Israel on 7 October 2023.
Conservative leader Kemi Badenoch said recognising a Palestinian state "won't bring the hostages home, won't end the war and won't get aid into Gaza".
"This is political posturing at its very worst," she added.
The announcement comes after a call between Sir Keir and the leaders of France and Germany over the weekend, when Downing Street said plans for a sustainable route to a two-state solution were discussed.
However, German Chancellor Friedrich Merz said his government had no plans to recognise a Palestinian state in the near future, suggesting this may be "one of the last steps on a path to realising a two-state solution".
Most countries - about 139 in all - formally recognise a Palestinian state.
Spain, Ireland and Norway took the step last year, hoping to exert diplomatic pressure to secure a ceasefire in Gaza.
Palestinian representatives currently have limited rights to participate in UN activity, and the territory is also recognised by various international organisations, including the Arab League.
Sceptics argue recognition is largely be a symbolic gesture unless questions over the leadership and extent of a Palestinian state are addressed first.
As Sir Keir made his announcement, Foreign Secretary David Lammy addressed a UN conference in New York, aimed at advancing a two-state solution to the conflict.
Lammy told reporters the UK had worked with Jordan to air-drop 20 tonnes of aid to Gaza in recent days, as he also called for aid trucks to be allowed to enter by land.
UN agencies have described the situation in Gaza as "man-made mass starvation", blaming the humanitarian crisis on Israel, which controls the entry of all supplies to the territory.
Israel has insisted there are no restrictions on aid deliveries and that there is "no starvation".
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