The House of Commons debate was being watched around the world after Sweden drew anger from Israel this month for saying it would recognise Palestine.
It was initiated by backbencher Grahame Morris from the main opposition Labour party, who said Britain had a "moral responsibility" to act because of its history as colonial power in the region.
"It's absolutely clear that Israel-Palestine relations are stuck at an impasse, as is our foreign policy," Morris said, opening the debate.
The vote is non-binding as it was initiated by a backbencher.
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Members of the government, which backs a two-state solution, were set to abstain from the vote, Prime Minister David Cameron's official spokesman said.
"We think that... You should do everything you can that's supportive of a successful and sustainable outcome based on a two-state solution," the spokesman told a regular press briefing.
However, a number of high-profile figures are reportedly uncomfortable with the motion and will not show up.
Neither Cameron nor Labour leader Ed Miliband was in the Commons chamber for the start of the debate.
Among MPs in the two parties that make up Britain's coalition government, a small number of Cameron's Conservatives and many Liberal Democrats- whose party supports Palestinian statehood - are likely to vote in favour.
The debate follows the collapse of peace talks between Israel and Palestine and this year's conflict in Gaza in which more than 2,000 Palestinians and dozens of Israelis were killed.
Before the debate, a handful of protestors gathered in pouring rain outside the Houses of Parliament, where they had erected a giant banner saying: "Yes Vote for a Palestinian State".