Israel's government approved the US-brokered ceasefire on Friday, with the agreement to come into effect within 24 hours.
Under the deal, Hamas will release the remaining Israeli hostages it has been holding in Gaza since October 7, 2023, and Israel will free nearly 2000 Palestinian prisoners.
Credit for the breakthrough belonged to US President Donald Trump for his leadership, Foreign Minister Penny Wong said.
"This has all been a result of the international momentum for peace and, most importantly, the US engagement led by President Trump," Senator Wong told AAP in Canberra.
She said Australia's recognition of Palestinian statehood at the United Nations General Assembly in September contributed to international momentum for peace and Australia would continue to work with overseas allies to ensure the ceasefire remained in place and a two-state solution could be agreed to.
"Whilst we aren't central to the conflict, what we wanted to continue to do was to work with the international community to push for a ceasefire," she said.
Federal Labor MP Josh Burns said the ceasefire created an opportunity to reset and a chance to rebuild social cohesion in Australia after months of tensions.
"Everyone can take a big, deep breath and we can all look at each other and see more humanity and hopefully not just in the Middle East, we have more peaceful days in Australia," the Jewish MP told the ABC.
"What's really important coming out of this is that we see each other's pain, we acknowledge it, and we respect it."
Prominent Muslim community leader and GP Jamal Rifi said there was a sense of relief at the ceasefire.
"Communities have been under immense pressure and right now, having a ceasefire that will end up with a peace ... it will give a lot of avenue for both communities to come together," he told ABC Radio.
What that may look like remains unclear.
Australia and a clutch of other developed nations recently took the step of formally recognising Palestinian statehood, building on its long-held support for a two-state solution.
Prime Minister Anthony Albanese praised the ceasefire as a welcome breakthrough which should progress towards a Palestinian state.
"We have called for some time for a ceasefire for the release of hostages, to be granted ... we also need to talk about the day after which requires a two-state solution," he said.
Australian National University Arab and Islamic studies lecturer Anas Iqtait is among many experts who feel that prospect is remote, given Israel's long-held dismissal of Palestinian sovereignty.
"The two-state solution is dead," he told AAP.
"Facts on the ground don't support it. The Israeli bureaucracy doesn't support it."
The initial elements of the deal were likely to be honoured but any progress beyond that was uncertain, Dr Iqtait said.
"Are we going to see a permanent end to the war? Are we going to see Israel withdraw from the Gaza Strip? Are we going to see the lifting of the humanitarian blockade that has been in place for a very long time?" he asked.
"These are questions that remain to be addressed."
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