A group, dressed in red to symbolise blood, passed between them a white, tightly bound cloth, designed to look like the dead body of a baby.
Images of some of the 20,000 children killed in Gaza were strung across the lawn.
About 80 protesters gathered outside the embassy on Tuesday to demand an independent investigation into the death of Australian aid worker Zomi Frankcom.
She was killed by the Israeli Defense Forces in April 2024 alongside other humanitarians while driving to deliver basic aid to the Gaza Strip.
The findings of an Israeli investigation, announced on World Humanitarian Day in August, suggested there was no suspicion of criminal misconduct surrounding her death despite a previous finding there had been failures in how the attack was carried out.
No charges were laid.
"I'm losing my faith in humanity when there is no justice," Karuna Ratna Bajracharya told the crowd, mourning the life of his wife's oldest friend.
"I can see that when our leaders fail us, when justice fails, when international law fails."
The protesters called for Israeli ambassador Hillel Newman to be expelled from Australia.
Dr Hillel was summoned by Foreign Minister Penny Wong for a dressing down after the investigation findings were released.
He said at the time he felt deep sorrow for Ms Frankcom's family and the loved ones of other victims, but refused to apologise for the strikes on aid vehicles.
The Israeli government did not grant Australia access to audio recordings of the strikes.
Senator Wong condemned the report and Dr Newman's response, saying it fell far short of what was acceptable.
"(I) have directed Australia's ambassador to Israel to convey our views directly to Israel as the Australian government considers next steps," she told media at the time.
"Australia is outraged the Israeli government has decided not to pursue criminal proceedings against those responsible for killing Zomi Frankcom and her World Central Kitchen colleagues."
Protesters say the response did not go far enough.
Mr Bajracharya, a lifelong Labor voter, said he was disheartened by the government's sustained ties with Israel.
"They have let me down dramatically. They have let down Zomi Frankcom," he said.
A letter to the minister in late August, understood to have been written by Australians previously onboard a Gaza-bound Global Sumud Flotilla, demanded an independent investigation into the Israeli Defense Forces' actions.
The group had not yet heard back, Jewish pro-Palestinian activist Anny Mokotow told the crowd.
"We have to fight against this as much as possible. We do it for Zomi Frankcom and those who have died senselessly with her - for their bravery, generosity and selflessness," Ms Mokotow said before reading out the letter.
It is understood Senator Wong's office was continuing to consult directly with Ms Frankcom's family.
A government update is expected in coming months.
Senator Wong's office was contacted for comment about the letter and negotiations with Ms Frankcom's family.
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