Israeli Prime Minister Benjamin Netanyahu posted on Twitter on Monday that during a phone meeting with his Australian counterpart, Morrison hinted at potentially moving Australia's embassy to Jerusalem - which Israel and Palestine both believe is their own capital.
The prime minister said one future scenario could involve Australia recognising a Palestinian Authority capital in East Jerusalem and Israeli capital in West Jerusalem.
"We're committed to a two-state solution", Mr Morrison told a media conference in Canberra. "I'm very thankful to him for this", Netanyahu tweeted.
The opposition center-left Labor Party said the announcement was a desperate attempt to win the by-election in the Wentworth electorate.
It would also be a departure from the position taken by former prime minister Mr Turnbull and former foreign minister Julie Bishop. If Sharma is not elected as the new lawmaker for Wentworth, the government will lose its single-seat majority in the House of Representatives.
'The people of Wentworth, and all Australians, deserve a leader who puts the national interest ahead of his self-interest, and governs in the best long term interest of the nation'.
George Browning, president of the Australia Palestine Advocacy Network, accused the government of "aligning itself with the most erratic, reactionary and bullish USA foreign policy ever".
"It will damage our relations with Islamic states in the Middle East but, most important, it will have implications for our dealings and the way we are seen in Indonesia and Malaysia", he said.
"I have made this decision without any reference to the United States".
"This is a regular part of our management of these foreign affairs relationships and I am pleased to be able to explain very clearly the nature of the announcements I have made today and I have been very pleased with the response that [we] have received from President Joko Widodo and we'll continue to work closely and cooperatively with our allies and with our partners all around the world on these issues", Mr Morrison said. Australia makes its decisions about its foreign policy independently.