"New Zealand is deeply saddened by the loss of life and devastation in Israel and the occupied Palestinian territories," outgoing prime minister Chris Hipkins said.
The government will split its contribution evenly across two funds: the International Committee of the Red Cross, and the World Food Programme (WFP).
The WFP funding is specifically towards food insecurity concerns in the Palestinian territories of Gaza and the West Bank.
A humanitarian crisis is unfolding in Gaza as Israel continues retributive assaults on the territory from Hamas' shock terror attacks a week earlier.
The UN has led calls for a dedicated aid corridor to access Gaza, which is blockaded by Israel, to prevent mass loss of life, amid reports of a lack of water, electricity and fuel.
Mr Hipkins said New Zealand supported this initiative.
"New Zealand calls for rapid and unimpeded humanitarian access to enable the delivery of crucial life-saving assistance," he said.
"We call on all parties to respect international humanitarian law, and uphold their obligations to protect civilians, and humanitarian workers, including medical personnel."
As New Zealand is currently in caretaker mode, Mr Hipkins consulted with incoming Prime Minister Chris Luxon on the decision.
Mr Luxon was asked his personal view on the crisis but deferred his commentary to Mr Hipkins.
During the election campaign, Mr Luxon - the leader of the centre-right National party - offered full-throated support for Israel.
"(We) condemn those attacks by Hamas on Israel. The pain and suffering being caused by those (attacks on) civilians is immense," he said on October 12.
"We certainly stand beside Israel's right to defend itself ... they were unprovoked attacks that we completely condemn."
Mr Hipkins said New Zealand Defence Forces had been readied on standby to help evacuate Kiwis from the region, if required.
Around 50 New Zealanders remain in Israel from a total of 244, which registered with the country's foreign affairs ministry, MFAT.
"Commercial routes remain the best option to depart the region, and MFAT is actively providing consular assistance to New Zealanders who remain in the affected region," Mr Hipkins said.
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