Jubilant Palestinians have rejoiced at the historic - but largely symbolic - vote at the UN General Assembly in New York granting them non-member observer status.
Celebrations took place overnight in the occupied West Bank and the Gaza Strip, Al Jazeera's correspondents in both places reported.
"People here know that when they wake up on Friday they'll still be living under an Israeli occupation. They won't, for instance, be in control of their own borders," reported Nadim Baba from Ramallah, West Bank, amid deafening noise from ecstatic Palestinians.
"What they do hope is that when it comes to negotiations with Israel, the fact that Palestine might be able to refer Israeli officials to bodies like the International Criminal Court (ICC) could put pressure on Israel to halt or slow down its settlement expansion."
In Gaza, Al Jazeera's Casey Kauffman spoke of a "burst of enthusiasm" as people waved green flags for Hamas, the faction which controls the coastal enclave, and yellow flags for Fatah, the Palestinian group based in Ramallah.
Rashid al-Kor told the AFP news agency: "I'm happy they declared the state even though it's only a moral victory. There are a lot of sharks out there, but it feels good."
Nearby, Palestinian-American Laila Jaman was waving a handful of Palestinian flags and carrying a picture of Barack Obama, the US president, and Mahmoud Abbas, the president of the Palestinian Authority in the West Bank.
"I feel so good, I cannot describe my feelings, it's as if we reached the end of a dark tunnel. With a Palestinian state we are now united as a people and a leadership," she said breathlessly.
The UN General Assembly voted overwhelmingly to recognise Palestine as a non-member observer state on Thursday, delivering a long-sought victory for the Palestinians. But it was diplomatic defeat for Israel and the US, two of the nine countries which opposed and voted against the upgrade.
In all, 138 countries voted in favour and 41 others abstained.
A Palestinian flag was quickly unfurled on the floor of the General Assembly, behind the Palestinian delegation.
The new status is an indirect recognition of the Palestinians' claims on statehood in the West Bank, East Jerusalem and the Gaza Strip. It allows them to join a number of UN agencies, as well as the ICC.
Abbas, the Palestinian Authority chief, addressed the General Assembly, saying that Palestinians were not seeking to "delegitimise" Israel, but to affirm the legitimacy of Palestine as a state.
Referring to the Israeli assault on Gaza, he said Palestinians had come to the UN at a time when they were "still tending to [their] wounds and still burying [their] beloved martyrs of children, women and men who have fallen victim to the latest Israeli aggression".
"What permits the Israeli government to blatantly continue with its aggressive policies and the perpetration of war crimes stems from its conviction that it is above the law and that it has immunity from accountability and [the] consequences [...] The moment has arrived for the world to say clearly: Enough of aggression, settlements and occupation."
Ali Abunimah, a Palestinian-American activist and the founder of Electronic Intifada, told Al Jazeera that the celebrations were uncalled for and that the UN was a "giant distraction".
"I wish that all this hype and dancing in the streets of Ramallah and self-delusion among the people were for a real achievement that actually returned rights to the Palestinian people.
"There is something incongruous and tasteless about the Palestinian Authority sponsoring a dance festival on the streets of Ramallah while families in Gaza are still mourning their children.
"This [vote] is a giant distraction; a cheap gesture, which allows people to celebrate as if they were in a football match."
US criticises upgrade
Immediately after the results were announced, Susan Rice, the US ambassador to the United Nations, branded the move "counter-productive", and the state department warned the status change could lead to a reduction of US economic support for the Palestinians.
"Today's unfortunate and counter-productive resolution places further obstacles in the path to peace. That is why the United States voted against it," Rice said.
Hillary Mann Leverett, former US diplomat and White House official, tells Al Jazeera that a change in status could be a potential deterrent to any future Israeli offensive on Gaza
"The backers of today's resolution say they seek a functioning, independent Palestinian state at peace with Israel - so do we. But we have long been clear that the only way to establish such a Palestinian state and resolve all permanent status issues is through the crucial, if painful, work of direct negotiations between the parties.
"Long after the votes have been cast, long after the speeches have been forgotten, it is the Palestinians and the Israelis who must still talk to each other and listen to each other."
Other countries that voted against the upgrade include Canada, the Czech Republic, Marshall Islands, Micronesia, Nauru, Palau and Panama.
Meanwhile, Ban Ki-moon, the UN secretary-general, renewed his call for the resumption of direct negotiations between Israel and Palestine.
"Today's vote underscores the urgency of the resumption of meaningful negotiations," Ban said.
"My position has been consistent all along. I believe that the Palestinians have a legitimate right to their own independent state. I believe that Israel has the right to live in peace and security with its neighbours. There is no substitute for negotiations to that end."
'Distortion of history'
Israel reacted swiftly to the news of the upgrade, with Prime Minister Binyamin Netanyahu describing Abbas' comments as "hostile and poisonous", and full of "false propaganda".
Mark Regev, spokesperson for Netanyahu, told Al Jazeera that the comments made by Abbas "make it more difficult" for his country to negotiate with Palestinian officials.
"Instead of speaking the language of reconciliation, we had libelous charge after libelous charge against the Israeli people," he said.
Regev dubbed Abbas' characterisation of the UN resolution calling for a two-state solution exactly 65 years ago "a distortion of history" .
"The way he talked about it. He forgot the most important thing. It was the Israeli side, the Jewish side that accepted two states for two people."