The comments from Industry and Trade Minister Benjamin Ben Eliezer come after Ecuador formally recognised Palestine as an independent state on Friday, following the lead of other South American countries.
Brazil, Argentina and Bolivia gave formal recognition earlier this month while Uruguay said it will do so early in the new year.
"I would not be surprised if within a year the entire world, even the US, recognizes a Palestinian state, then we will have to explain how this happened," Ben Eliezer told reporters ahead of the weekly cabinet meeting.
Israel opposes any recognition of a Palestinian state, saying its establishment must be reached through negotiations and not through unilateral moves.
But with the breakdown of peace talks, the Palestinians have said they are considering new diplomatic options, and welcomed the recognition from the Latin American nations.
Direct talks between Israel and the Palestinians, the first for nearly two years, began in Washington on September 2. But they quickly stalled, when a 10-month Israeli settlement freeze expired on September 26.
The Palestinians refused to resume negotiations without a new moratorium and on December 7 Washington admitted that it had failed to convince Israel to renew the building ban, despite offering a generous package of incentives.
Ben Eliezer, from the dovish Labour Party, said Israel must do all it can to get talks back on track.
"We must do all everything possible to renew talks with the Palestinians, even if it means a settlement freeze for a few months," he said.
Palestinian negotiators have emphasised a set of alternatives to new talks, including seeking recognition of a Palestinian state along the borders that existed in 1967, before the Six Day War.
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