The Palestinian Authority formally announced last weekend that it would seek unilateral recognition of an independent Palestinian state within the pre-1967 borders at the United Nations General Assembly next month. The Israeli government is still divided on how best to respond to the challenge.
At least 120 UN member-states are expected to support Palestinian statehood at the General Assembly. The Palestinians will not seek recognition by the UN Security Council because the United States is expected to veto such a resolution.
From a legal point of view, the General Assembly resolution is mostly declarative but the Israeli government is concerned that its acceptance could lead to more intense diplomatic pressure on Israel and a violent escalation in the West Bank and on Israel's
The Palestinian delegation to the UN headquarters in New York will be led by President Mahmoud Abbas and the debate on the future of Palestine is scheduled to take place on September 20, with the actual vote a week later.
The Palestinian Authority has formed a team called "Palestine 194" - so-named because the prospective state would be the 194th member of the UN - that will oversee the process.
During the General Assembly meetings, large-scale marches and demonstrations are scheduled to take place in the West Bank. The PA has promised Israel that the demonstrations will be "non-violent" and will not clash with Israeli forces outside the Palestinian cities. However, the IDF and Israeli police are preparing for widespread violence and have drawn up plans to "contain" any outbreaks, with clear orders to officers and soldiers to use non-lethal methods so as not to cause a large number of casualties that would lead to an escalation.
Israel's security cabinet is split over how best to respond to the Palestinian plan. Finance Minister Yuval Steinitz has called for a halt to money transfers to the Palestinian Authority.
Defence Minister Ehud Barak opposes such steps, arguing that a lack of funds will mean that the PA will cease to exist, forcing Israel to assume responsibility for the livelihood and welfare of 2.5 million Palestinian civilians in the West Bank.
A secret report compiled by the Knesset Foreign Affairs and Defence Committee criticises the government for not embarking on a public diplomatic initiative that could have warded off the Palestinian challenge. The report, however, does praise the preparedness of the military and the police. A leaked excerpt from the report says: "There is a potential for confrontation with large masses of Palestinians who will advance on flashpoints on the separation fence or the settlements."
Prime Minister Benjamin Netanyahu's office said in a statement following the Palestinian announcement that Mr Netanyahu "is still convinced that only direct and candid negotiations, and not unilateral decisions, can advance the peace process".