Israel has threatened to slap sanctions on the Palestinian Authority if the PLO goes ahead with plans to seek an upgrade in its UN status to “non-member state” but Palestinian President Mahmoud Abbas seems determined – not least because he knows that Israel now considers the Palestinian Authority too crucial to fail.

Mr Abbas told Arab League ministers meeting in Cairo this week that the application will be brought to a vote on November 29, the 65th anniversary of the 1947 UN partition vote that recommended the creation of two states in Palestine.

Israel fears that the Palestinians, bolstered by the diplomatic victory that seems assured by majority support in the 193-member UN General Assembly, will use their new status to haul Israel before the International Criminal Court in The Hague for alleged crimes. In January 2009, Ali Khasha, then Palestinian Justice Minister, recognized the jurisdiction of the court “for the purpose of identifying, prosecuting and judging the authors and accomplices of acts committed on the territory of Palestine since 1 July 2002.”

Both Israel and the United States say the UN move is a unilateral action that violates the Oslo Peace Accords. The Palestinians counter that Israel’s expansion of West Bank settlements also violates Oslo.

The United States can veto full recognition of Palestine as a full UN member at the Security Council, but the General Assembly can grant observer status. Most European states remain undecided. Britain is leaning towards a “No”.

President Obama even phoned Mr Abbas on Sunday to underline his “opposition to unilateral efforts at the United Nations,” while Congress has threatened to cancel aid to the Palestinian Authority.

But the Palestinian president has decided to defy the pressure from Washington.

“We do not want to clash with anyone, neither with America nor with Israel nor with anyone else,” Abbas said, soliciting the “blessings” of the Arab League.

Israeli ambassadors are mounting a diplomatic offensive against the UN move. Israeli officials have been pondering a range of possible sanctions, including the annexation of West Bank territory and strangling the Palestinian economy.

Israeli Finance Minister Yuval Steinitz has said Israel would retaliate by withholding about $100 million monthly in taxes and customs duties which it collects on the PA's behalf – about one-third of the Palestinian budget.

But Muhammad Shtayyeh, a senior Fatah official engaged in the UN bid, told reporters in Ramallah that Israel had no interest in bringing about the collapse of the PA which administers 38 per cent of the West Bank containing more than 90 per cent of the Palestinian population.

“In my opinion, most of the declared measures will be empty threats, rather than serious ones, because Israel has a vested interest in maintaining the status of the Palestinian Authority,” Mr Shtayyeh said.

Israeli officials confirm that the stability of the PA has become as vital for Israel as it is for the Palestinians.

“The tax money transferred by Israel is critical, essential for the Palestinian Authority. It is in the interest of both Israel and the international community – as well as the Palestinians – to keep the Palestinian Authority afloat,” a senior Israeli security official told The Independent, speaking on condition of anonymity.

Despite the supposed lack of negotiations between the two sides, Mr Steinitz and Palestinian Prime Minister Salam Fayyad signed a new tax collection and trade agreement on July 31 designed to speed up the transfer of customs and other duties – part of an Israeli effort to strengthen the economy of the PA.

Recently, when the PA faced a cash crisis due to the failure of donor states to honour aid pledges, Israel advanced nearly $200 million to pay the salaries of Palestinian civil servants.