The upgrade would give the Palestinians a place in the world body akin to that of the Vatican -- short of full membership as a sovereign state but as close as they can get without the full recognition that Israel says can only come from a peace treaty.
A draft document from the office of Israeli Foreign Minister Avigdor Lieberman, seen by Reuters, said Israel must confront this challenge by means that could include "toppling (Abbas) and dismantling the Palestinian Authority".
Lieberman said in a speech at the illegal settlement of Ariel in the occupied West Bank that if the Palestinian upgrade request was accepted by the UN General Assembly -- as is widely predicted -- Israel may punish the Palestinians.
"If the ... proposal is adopted at the United Nations General Assembly, as far as we are concerned this would be a complete breaking of the rules and it will elicit an extreme response from us," Lieberman said Wednesday.
Newspaper reports say Israel instructed its ambassadors to warn it may revoke all or part of the 1993 Oslo Accords between Israel and the PLO, which set up the Palestinian Authority under an interim peace agreement.
PLO official Saeb Erekat told Ma'an on Wednesday that Israel had abandoned the Oslo Accords "a long, long time ago."
Palestinian National Initiative leader Mustafa Barghouti says Palestinians "are tired of Oslo, we are tired of occupation ... and we are sick and tired of apartheid."
He told Ma'an Israel had benefited from the Oslo Accords "more than anyone else" and insisted Palestinians were "determined to achieve a Palestinian state."
On the 19th anniversary of the agreement in September, Palestinian leaders and protesters called for the annulment of the Oslo Accords.
The PLO is currently an observer "entity" at the United Nations. An upgrade could grant Palestine access to bodies such as the International Criminal Court in The Hague, where it might file legal suits against Israel.
Israel and the United States oppose any backdoor, unilateral route to statehood which they say can only come from a negotiated treaty ending the 64-year-old Middle East conflict.
Erekat told Ma'an the PLO viewed the UN bid as "the only way to preserve the two-state solution." A draft resolution circulated by the PLO would have UN member states express "the urgent need for the resumption and acceleration of negotiations within the Middle East peace process."
Direct peace talks have been stalled for over two years over Israel's refusal to freeze illegal settlement construction.Carrot and stick
Specific details of what Israel might do were not clearly stated, although a government source said Israel might cancel financial agreements with the Palestinians and could increase its settlement building drive.
Israel could easily cripple the indebted West Bank economy.
Conversely, the draft says that if the Palestinians withdraw their UN bid, Israel would be ready to recognize a Palestinian state within temporary borders for an interim period, until permanent status could be achieved through negotiations.
The Oslo Accords were intended to be a five-year interim agreement resulting in an independent Palestinian state by 1999.
Finance Minister Yuval Steinitz said Abbas's move was as much of a threat as the rockets fired at Israel by militants in the Gaza Strip run by Islamist Hamas, Abbas's bitter rivals.
"The diplomatic onslaught by (Abbas) is a strategic threat no less severe than (Hamas') rockets. I am not in favor of crushing the Palestinian Authority but if there is no choice and it could unilaterally turn into a state that threatens Israel, we should not be afraid of tough steps," he told Israel Radio.
A PLO official, speaking on condition of anonymity, on Wednesday compared the diplomatic initiative to "taking Mike Tyson out of the boxing ring to play chess."
He said the PLO was not surprised by Israeli threats to cancel the Oslo Accord and insisted requesting UN recognition of Palestinian statehood was a legitimate step.
"We are not killing anyone," he said.
The status upgrade seems certain to win approval later this month in the General Assembly, which is composed mostly of post-colonial states historically sympathetic to the Palestinians.
The diplomatic effort is accompanied by a campaign of civil disobedience in the West Bank, where demonstrators against military occupation on Wednesday blocked roads used by Israeli settlers, in a display of "popular resistance".
Hundreds of Palestinian protesters and Israeli activists swarmed over roads throughout the territory and Israeli troops responded quickly with tear gas and arrests.
"This is a message delivered in a civilized and humanitarian way to remind the world that we are under the worst kind of occupation," said Jibreel Rajoub, head of the youth councils organizing the demonstrations.
Unarmed protest contrasts starkly with the violence used by Hamas, which pours scorn on the Palestinian Authority for renouncing "armed struggle" and for recognizing Israel.
In a striking example of strange bedfellows, news of Israel's possible retaliation against Abbas coincided with a call from Hamas to topple the president.
"The entire nationalist project is being subjected to grave danger from Abbas and his agenda and therefore, Palestinian and Arab demands should focus on bringing down the authority of Abbas and his political plan," Hamas official Salah Al-Bardaweel wrote in the Felesteen daily.
Hamas is furious that Abbas, in a recent Israeli television interview, said he did not aspire to recover his former home in Israel -- a statement taken as abandoning the "right of return" claim held sacred by many Palestinians.Ma'an staff contributed to this report.
JERUSALEM (Reuters) -- Israel may try to topple President Mahmoud Abbas if he carries out a plan to ask the United Nations this month to upgrade the status of the Palestinian Authority, an official said on Wednesday.