Palestinian President Mahmoud Abbas appeared before the U.N. in New York to make the official petition.
He drew an ovation as he walked up to the podium. Some members of the Israeli delegation, including Foreign Minister Avigdor Liebermann, left the hall as Abbas approached the podium.
Abbas said that despite any action from the U.N., Israel continues to build settlements on lands the Palestinians claim for their state.
"This policy is responsible for the continued failure of the successive international attempts to salvage the peace process," Abbas said, who has refused to negotiate until the construction stops. "This settlement policy threatens to also undermine the structure of the Palestinian National Authority and even end its existence."
For its part, Israel has warned that the Palestinian appeal for statehood will have a disastrous effect on their decades-long negotiations.
Israeli Prime Minister Benjamin Netanyahu, addressing the General Assembly shortly after Abbas, said his country was "willing to make painful compromises."
"I extend my hand to the Palestinian people, with whom we seek a just and lasting peace," he said, to extended applause.
Palestinians, he added, "should live in a free state of their own, but they should be ready for compromise" and "start taking Israel's security concerns seriously."
The drama at the U.N. was on the minds of many in the Southland. In Garden Grove, the Arab-American Day Festival kicked off on Friday and goes until Sunday.
Organizers said that a large portion of the turnout were Palestinians. Many were in support of the bid to be recognized as a member state.
"The only way to have peace in the Middle East is to give the Palestinians a country or a homeland," said Arab American Council President Ahmad Alam.
The U.S. has vowed to veto a U.N. Security Council decision for statehood, saying it should instead be achieved through negotiations with Israel.
The Security Council will meet on Monday to take up the matter of Palestine's statehood.
The Associated Press contributed to this report.