Kerry traveled to UN headquarters in New York to attend a commemoration of the 1975 speech delivered by Israeli ambassador Chaim Herzog denouncing a UN resolution that declared Zionism a form of racism.
"The Zionist dream embraces the concept of Israel as a Jewish democracy, a beacon of light to all nations," Kerry told the event.
"That dream can only be upheld by two states living side by side in security.
"We all know from years of discussion and efforts: this is not an impossible dream. It is achievable."
His remarks followed Israeli Prime Minister Benjamin Netanyahu's visit to Washington this week that saw little signs of progress in efforts to revive Israeli-Palestinian peace talks.
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Those talks have been comatose since Kerry's failed peace mission in April last year.
Kerry argued that choosing to recognize a Palestinian state "demands courage, demands leadership" and likened that choice to Herzog's actions at the UN 40 years ago.
"Fear and bigotry can be defeated, but those are choices we now get to make. So now it's our turn."
The call for an Israeli-Palestinian settlement resonated at the United Nations, where reviving the peace process is becoming a top agenda item at the Security Council.
Council members are weighing a draft resolution, presented by New Zealand, that declares the two-state solution as "the only credible pathway to peace" and demands that both sides prepare for new talks.
International diplomats desperately want to revive peace talks to avoid a slide into more violence that many fear could lead to a third Palestinian intifada.
A weeks-long wave of violence has claimed the lives of at least 77 people on the Palestinian side -- one of them an Israeli Arab -- along with 10 Israelis. Many of the Palestinians killed were alleged attackers.