Hanan Al Hroub, who teaches at the Samiha Khalil High School in the West Bank Palestinian city of Al-Bireh, was presented with the award in the United Arab Emirates (UAE).
Leaders including Pope Francis, Britain's Prince William, U.N. Secretary-General Ban Ki-moon, U.S. Vice President Joe Biden and former U.S. President Bill Clinton recorded messages for the ceremony.
The Global Teacher Prize was set up by the not-for-profit Varkey Foundation after a 2013 survey found the profession’s status had been declining.
Hroub, who grew up at a refugee camp near the West Bank city of Bethlehem, beat nominees from Japan, Canada, Kenya, the United States and the United Kingdom.
Hanan, who has detailed her approach in a book entitled ‘We Play and Learn', said: "I am proud to be a Palestinian female teacher standing on this stage."Wearing a traditional Palestinian dress decorated with red embroidery, she accepted the prize "as a win for all teachers in general and Palestinian teachers in particular."
She said she would use some of the money to promote her education methods and support fellow teachers in the Palestinian territories.
Pope Francis announced the winner in a video message to the ceremony, which was chaired by UAE Prime Minister and Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum.
"You learn how to be social through games as well as learn the joy of life," Francis said.
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