Mr Albanese told a Labor caucus meeting in Canberra on Tuesday that it was important to be unequivocal in opposition to what happened on October 7, while also acknowledging there have been too many civilian deaths in Gaza.
"At the end of this, we need a political settlement," he said.
The prime minister said Jewish, Muslim and Palestinian Australians were "really hurting at the moment".
Many in Muslim and Palestinian communities felt hurt, believing there had been less emphasis on Palestinian lives, he said.
Mr Albanese also criticised the rising level of anti-Semitism and the pro-Palestinian motorcade through Sydney's east.
"We have a responsibility to de-escalate tensions," he said.
The caucus was told of concerns about the level of misinformation circulating in the community regarding Australia's role in the Middle East.
Mr Albanese said there was no direct Australian involvement or supply of weapons.
Peter Dutton says the prime minister has been found wanting on the Middle East conflict.
Opposition Leader Peter Dutton told a coalition partyroom meeting the prime minister had been "found wanting" during the conflict in the Middle East.
He also criticised comments from Foreign Minister Penny Wong calling for an Israeli ceasefire.
"Her comments suggest Labor's hearts aren't in it, and they are divided over this issue," Mr Dutton said.
"We will not stand by and watch Australians vilified for their religion or their heritage."
Liberal MP Julian Leeser also told the meeting Australia had gone from having "the best prime minister on Israel to the worst prime minister on Israel".
Meanwhile, a Resolve poll published in Nine newspapers on Tuesday found 36 per cent believe Australia is less safe, 32 per cent disagreed and 32 per cent were unsure.
The results come after a series of rallies and clashes in major capital cities since the Islamist militant group Hamas attacked Israel's southern region, killing more than 1200 people and taking more than 200 hostages.
In response, Israel declared war on Hamas, which runs the Gaza strip and is considered a terrorist group by the Australian government.
Palestinian officials say more than 11,000 Gaza residents have been killed in air and artillery strikes.
In Australia, there have been pro-Palestine rallies - some of which have been criticised for the use of anti-Semitic rhetoric and intimidation - and pro-Israel rallies by members of the Jewish community calling for those kidnapped to be released.
Hamas has no respect for international law, but we do. — Senator Penny Wong (@SenatorWong) Civilians and hospitals in Gaza must be protected.We need steps towards a ceasefire, but it cannot be one-sided. pic.twitter.com/gMXOlxWFg7November 12, 2023
The Resolve poll of 1602 eligible voters between November 1-5 also asked if Australia should keep out of the conflict or intervene by calling for a ceasefire.
Some 69 per cent believe Australia should keep out of the conflict compared to 14 per cent who said Australia should try to intervene, with 17 per cent unsure.
However, the poll also found there was more backing for Israel when voters were asked if Australia should declare in-principle support for either side, at 31 per cent to seven per cent for Palestine.
It comes as organisers of a pro-Palestine rally encourage Victorian students to stage a lunchtime walkout from school.
The school strike for Palestine has been called for November 23 across Melbourne after the city drew 45,000 demonstrators on Sunday to a rally calling for an end to the war in Gaza.
Premier Jacinta Allan said she expected students to remain in class but bristled at a suggestion the government should instruct schools not to approve leave or stop the rally from going ahead.
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