Israel 'quite clearly' breaking international law
Mr Albanese spoke of his emotional response to images of gaunt and dying children in the Palestinian territory, while acknowledging increased airdrops of aid by Israel was "a start".
"It just breaks your heart," he told ABC's Insiders on Sunday.
"A one-year-old boy is not a Hamas fighter, and the civilian casualties and deaths in Gaza is completely unacceptable. It's completely indefensible.
"Quite clearly it is a breach of international law to stop food being delivered, which was a decision that Israel made in March. It's a breach of decent humanity and of morality, and everyone can see that."
But the prime minister would not commit Australia to following the lead of France in recognising Palestinian statehood at the UN General Assembly in September.
Any resolution would need to guarantee Hamas, the defacto ruling authority in Gaza which is listed as a terrorist organisation by Australia, had no part in Palestine's future, he said.
"We need security for the state of Israel, but you need to have the legitimate aspirations of the Palestinians for their own state realised as well," Mr Albanese said.
"That will mean security arrangements, it will need agreements as well about the rebuilding of Gaza and the West Bank. It will need the issue of settlements to resolve as well."
Recognising a Palestinian state as part of a two-state solution in the Middle East is included in Labor's national platform.
"Are we about to imminently do that? No, we are not," Mr Albanese said.
"But we will engage constructively. The United States as well will have a critical role in this, they have to play a role."
Mr Albanese once again called for an immediate ceasefire and for Gaza to release Israeli hostages.
But opposition foreign affairs spokeswoman Michaelia Cash said the government had failed to lay the blame for the war at the feet of Hamas in a statement condemning Israel's denial of aid on Friday.
"What this statement does not do is squarely say to the global community, we would like to see the end of the war in Gaza. And the next sentence should have been, 'and we call on the terrorists Hamas, who commenced this war, and who are ensuring the suffering of the civilians in Gaza, to end this war tomorrow'," Senator Cash told Sky News.
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