Starmer said the UK would make the move unless Israel took substantive steps to allow more aid to enter the Gaza Strip, made clear there will be no annexation of the West Bank and commits to a long-term peace process that delivers a "two-state solution" - a Palestinian state co-existing in peace alongside Israel.
"The Palestinian people have endured terrible suffering," Starmer told reporters.
"Now, in Gaza, because of a catastrophic failure of aid, we see starving babies, children too weak to stand, images that will stay with us for a lifetime. The suffering must end."
Starmer said his government would make an assessment in September on "how far the parties have met these steps" but that no one would have a veto over the decision.
Israeli Prime Minister Benjamin Netanyahu said in response that Starmer's decision rewards "Hamas monstrous terrorism and punishes its victims".
"A jihadist state on Israel's border today will threaten Britain tomorrow," Netanyahu added.
Starmer took the decision after recalling his cabinet during the summer holidays on Tuesday to discuss a new proposed peace plan being worked on with other European leaders and how to deliver more humanitarian aid to the Gaza Strip, a government statement said.
"He reiterated that there is no equivalence between Israel and Hamas and that our demands on Hamas remain that they must release all the hostages, sign up to a ceasefire, accept that they will play no role in the government of Gaza and disarm."
Successive UK governments have said they will formally recognise a Palestinian state when the time is right, without ever setting a timetable or specifying the necessary conditions.
A growing numbers of MPs in Starmer's Labour Party have asked him to recognise a Palestinian state to push Israel towards action.
Pressure to formally recognise Palestinian statehood has mounted since French President Emmanuel Macron announced that his country will recognise a Palestinian state in September.
Meanwhile, Germany sent two military transport aircraft to Jordan to assist in airdrops of humanitarian aid into the Gaza Strip, Chancellor Friedrich Merz said.
Planes from Jordan and the United Arab Emirates dropped another 52 pallets of food over the Gaza Strip, the Israeli military said on Tuesday.
Egyptian planes also took part in the airdrops for the first time since Sunday, when Israel began allowing increased aid into the sealed-off Palestinian territory after months of restrictions, the military said.
The Israeli military on Sunday announced it was implementing daily "humanitarian" pauses in fighting to allow for new aid to be safely distributed in the embattled strip amid increased international pressure over warners of imminent famine.
The military said Egypt, Jordan and the UAE were co-ordinating the airdrops with Israel.
Aid organisations including Doctors Without Borders have criticised the method as ineffective and expensive compared to lorry aid deliveries.
They also note the danger posed to waiting civilians by the dropping pallets, which are attached to parachutes.
Scores of Palestinians in the Gazan town of Zawaida swam into the sea to retrieve what they could from airdrops of aid on Tuesday.
Kamel Qoraan returned to shore with a soaked bag of tea powder, saying that airdropping aid is "humiliating" and calling for the opening of border crossings for trucks.
Some people seemed relieved to get anything.
One boy smiled as he clutched a small sack of flour.
One man had a can of beans.
Momen Abu Etayya said his son urged him to chase the airdrops, and dashed into the sea.
"I was only able to bring him three biscuits," he said.
with AP and DPA
