He said he feared a "death of an independent Palestine state" would only further inflame tensions in the Middle East.
Rudd made the remarks Following indications from U.S. President Donald Trump that the United States would support a "one-state solution" between Israel and Palestine.
Rudd called on current Australian Prime Minister Malcolm Turnbull to label a one-state solution as "unacceptable".
Israeli Prime Minister Benjamin Netanyahu is set to become the first sitting Israeli leader to visit Australia when he meets with Turnbull on Wednesday, and Rudd said it is up to the Australian prime minister to make a strong statement on behalf of his nation.
"It is now critical for Israels closest friends and allies to send a clarion clear message to both Tel Aviv and Washington that the abandonment of a two-state solution is unacceptable," Rudd told Fairfax Media.
"Australia is one such close friend and ally. It is not acceptable, therefore, for Australia to use weasel words."
"It is time for Australia to draw a line in the sand on this matter, as 137 states already have."
Rudds comments also come as Israel continues to move ahead with the construction of more than 4,000 homes on Palestinian land in the West Bank and in East Jerusalem, something Rudd said would only inflame tensions.
"My deepest fear is we are drifting towards the disintegration and death of an independent Palestinian state. This would be a tragedy for both the Palestinian and Israeli people," Rudd said.
"For Israel, the isolation of Palestine and the removal of the prospect of both land and statehood may well lead to the re-radicalization of the Palestinian people."
"I deeply fear the possibility of a third Intifada. And so, the time has come for Australia to join countries like Sweden and the Holy See in formally recognizing the Palestinian state," he said.(*)