The domain name www.Google.Ps, Google's search engine for the territories, now brings up a homepage with "Palestine" written underneath the Google logo.
The change took effect on Wednesday, Google spokesman Nathan Tyler said in a statement.
"We're changing the name 'Palestinian Territories' to 'Palestine' across our products. We consult a number of sources and authorities when naming countries. In this case, we are following the lead of the UN... And other international organisations," he said.
Palestinian authorities have since begun to use the "State of Palestine" in diplomatic correspondence and issued official stamps for the purpose.
Israel questioned Google's decision.
"This change raises questions about the reasons behind this surprising involvement of what is basically a private Internet company in international politics -- and on the controversial side," foreign ministry spokesman Yigal Palmor told AFP.