Netanyahu had snubbed Gabriel in April when the visiting diplomat declined to call off meetings with rights groups critical of Israel's government.
In statements after Wednesday's meeting, the two were cordial, but Netanyahu interrupted Gabriel when he talked about a two-state solution to the conflict.
Gabriel said he was "very thankful to hear that, of course, also the government of Israel wants to have two states" with secure Israeli borders.
Netanyahu, who heads what is seen as the most right- wing government in Israel's history, interjected to reiterate his position that his country would have to maintain security control in the Palestinian territories under any peace arrangement.
"Whether or not it's defined as a state when we have the military control is another matter, but I'd rather not discuss labels, but substance."
A two-state solution has long been the ultimate goal of international efforts to mediate a peace deal between Israel and the Palestinians.
US President Donald Trump has however declined to commit to a two-state solution, instead saying he can support it if both sides agree.
He has also recognised Jerusalem as Israel's capital, breaking with decades of international consensus that the disputed city's status must be negotiated.
Netanyahu says he wants the Palestinians to govern themselves, but in recent months has declined to specify whether that would mean an independent Palestinian state or some diluted form of autonomy.
Speaking later in Tel Aviv, Gabriel questioned Israel's approach to the conflict.
"These, at best, mixed signals do not go unnoticed in Europe, where there is clearly growing frustration with Israel's actions," Gabriel said in a speech at a conference of the Institute for National Security Studies think-tank.
"And it's increasingly difficult for people like me to explain to them the reasons why our support for Israel must persist. As a friend and close ally, we need to know if Israel is not supporting a negotiated solution to this conflict anymore."
Gabriel also met Palestinian president Mahmud Abbas in the West Bank town of Ramallah on Wednesday.
European nations have repeatedly warned that chances are diminishing for a two-state solution and called on Israel to halt settlement building in the West Bank.
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