His mention of a two-state solution, the first by an Israeli leader in years at the United Nations General Assembly, echoed US President Joe Biden's support in Israel in August for the long-dormant proposal.
"An agreement with the Palestinians, based on two states for two peoples, is the right thing for Israel's security, for Israel's economy and for the future of our children," Lapid said.
He added any agreement would be conditioned on a peaceful Palestinian state that would not threaten Israel.
Lapid spoke less than six weeks before a November 01, 2022 election that could return to power the right-wing former Prime Minister Benjamin Netanyahu, a longstanding opponent of the two-state solution.
Israel captured East Jerusalem, the West Bank and Gaza - areas that Palestinians seek for an independent state - in a 1967 Middle East war. US-sponsored Israeli-Palestinian peace talks collapsed in 2014.
In his speech, Lapid again denounced Iran and voiced Israel's determination to prevent its longtime foe from gaining a nuclear weapon.
"The only way to prevent Iran from getting a nuclear weapon is to put a credible military threat on the table," he said. "We have capabilities and we are not afraid to use them."
Widely believed to have the Middle East’s only nuclear weapons, Israel regards Iran as an existential threat. Tehran denies trying to develop a nuclear weapon.
Efforts to reach a two-state Israeli-Palestinian deal have long been stalled.
Palestinians and rights groups say Israel has entrenched its control of the occupied Palestinian territories through its military rule over millions of Palestinians and persistent settlement construction.
Wasel Abu Youssef, a senior member of the Palestine Liberation Organization, told Reuters that Lapid's words "mean nothing."
"Whoever wants a two-state solution must implement it on the ground," he said, by respecting previously reached agreements, stopping settlement expansion and recognizing East Jerusalem as the capital of a future Palestinian state.
US Ambassador to Israel Tom Nides called Lapid's speech "courageous" for supporting the two-state solution.
Lapid praised efforts by Middle Eastern countries to normalize relations and cooperate with Israel. He urged Muslim countries, from Indonesia to Saudi Arabia, to make peace with it.
