The UN General Assembly voted overwhelmingly in New York on Friday in favour of a resolution to enhance the status of the Palestinians at the world body, including full membership for Palestine.
A clear majority of 143 member states voted in favour, with nine against and 25 abstentions. The General Assembly has 193 member states.
The resolution grants the Palestinians more participation rights and privileges within the General Assembly, where debates take place and no member wields veto power.
It also called upon the UN Security Council to "favourably" consider full UN membership for Palestine. The council has final say in admitting UN members.
However, the United States has said it will use its veto to block the measure when it comes up in the Security Council.
Ahead of the vote, Palestinian ambassador to the UN, Riyad Mansour, said: "I have stood hundreds of times before at this podium but never for a more significant vote than the one about to take place, a historic one."
Palestinians had faced "attempts to push us out of geography and out of history" but had survived against all the odds, he said. "Our flag flies high and proud."
Israeli ambassador to the UN Gilad Erdan said that the General Assembly was about to "advance the establishment of a Palestinian terror state, which will be led by the Hitler of our times."
The General Assembly wanted to open up the UN "to genocidal jihadists committed to establishing an Islamic State across Israel and the region, murdering every Jewish man, woman, and child. It makes me sick."
The vote set an unfortunate precedent, Erdan said.
While the vote was seen as increasing pressure on Israel and on the US, its key ally, it could theoretically also lead to demands that the US defund the UN as a whole.
An existing US law provides for Washington to cut off funds to any UN agency that recognizes Palestine as a state. As the US is by far the largest funder, this would have a major impact.
Speaking ahead of the vote, Nate Evans, spokesman for the US Mission to the UN, indicated that the US would use its veto as it last did on April 18.
"Should the General Assembly adopt this resolution and refer the Palestinian membership application back to the Security Council, we expect a similar outcome to what occurred in April," he said.
The UN General Assembly recognized Palestine as an observer state in 2012 despite resistance from the United States. Palestine and the Vatican are the only two non-member states with observer status in the body.
The resolution, which was introduced by the United Arab Emirates but drafted by the Palestinians, has been the source of disagreements at UN headquarters in New York for weeks.
The text states that the General Assembly has determined that the "State of Palestine ... should be admitted to membership of the United Nations." It also recommends that the UN Security Council, which holds decisive power over UN membership, "reconsider the matter favourably."
The move by General Assembly, which comes against the backdrop of the ongoing war in the Gaza Strip, is also a reflection of international opinion on the Middle East conflict.
The US, China and Russia, all holding vetoes in the Security Council, fear a loss of control in the upgrading of regions whose statehood is disputed.
While the measure specifically mentions Palestine as an exception, attempts to apply its principles to Kosovo and Taiwan could cause difficulties for the major powers.
