More than two thirds of the UN General Assembly voted in favour of the change, while urging the resumption of negotiations between Israel and the Palestinians, to lead to a permanent two-state solution.
"We did not come here seeking to delegitimize a state established years ago, and that is Israel; rather we came to affirm the legitimacy of the state which must now achieve its independence, and that is Palestine," the President of the Palestinian Authority, Mahmoud Abbas told the assembly before the vote.
Israel's Ambassador to the UN, Ron Prosor, said his delegation could not accept the resolution. “Because this resolution is so one-sided, it doesn't advance peace, it pushes it backwards,” he said, adding that peace could only be achieved through negotiations.
German Foreign Minister Guido Westerwelle said on Friday in Berlin he was disappointed that the European Union had failed to vote together, with most of the bloc supporting the Palestinians, but Britain and Germany abstaining. The nine countries who opposed alongside the US and Israel were Canada, the Czech Republic, the Marshall Islands, Micronesia, Nauru, Palau and Panama.
Westerwelle also said, "The vote must be taken as a prompt to start direct peace talks as soon as possible." He added it was important to prevent any long-lasting hardening of positions, and that rather, all efforts should be made to fine a just and fair two-state solution.
The centrist Tagesspiegel said in a scathing piece, that Germany was devaluing its foreign policy, and questioned whether, with the dearth of clear positions being taken on international issues, there was still any strategy being followed.
"Today no one has to ask the Foreign Ministry, or more specifically the foreign minister. His attitude is, when one is necessary, all too happily, to abstain. But that is no position. Trying to disguise indecision as cleverness is much more a sign of devaluation...
"Foreign policy - that is less about trips to far away places and more about the representation of the country's leading interests with consideration, clear positions and also the willingness to have arguments. At other times Germany was seen by the world as the European power which gave orientation. If this is continued, that will be over."
The left-wing Berliner Zeitung said there could be not doubt that Germany had a duty to avoid everything that endangered the interests of Israel. "But - although an upgrading of the Palestinians at the UN might not be in the interests of Prime Minister Netanjahu's government, it is not a danger for the state.
"Israel has an interest that the moderate Palestinian President Abbas is fortified. He has is interested in the lasting peace that can only be achieved with a two-state solution. Germany should have the courage to say this and to vote accordingly. Out of solidarity with Israel - and Europe."
The regional Stuttgarter Zeitung said, "Germany's influence in the region is not inconsiderable, but German diplomacy cannot achieve anything alone. Only a united Europe could force progress.
"A joint European line is necessary because the USA is visibly losing interest in the region and sees North Africa as well as the Middle East as increasingly Europe's backyard - in which the Europeans should in the future take care of things themselves. Washington's focus is firmly in the Pacific area."
The business daily Handelsblatt said, "The upgrading of the Palestinians to 'Observer State' status will in any case not stop the conflict. Rather, it will lead to a hardening of positions. Most of the global community is hoping for progress in the peace process which should lead to a two-state solution. Fresh ideas are needed. The acceptance of the resolution blocks the search for a new Middle East policy."
And the Saarbrücker Zeitung said the Palestinian upgrade should be seen as another missed chance in the history of the Middle East peace process. "Among other aspects, because of the USA and Germany. But both states are taking the correct path with the 'No' from Washington and Berlin's abstention.
"Because the Palestinians formally do not have anything what a state requires - there are essentially two autonomous regions - ruled by Hamas and Fatah. There is no functioning unitary government, just as there is no clear demarcation of borders, nor the intention to live in peace with their neighbour Israel."