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JERUSALEM (Reuters) - Senior members of Israel's cabinet on Tuesday weighed punitive steps that could be taken against the Palestinians if they pursue a campaign to upgrade their status to "observer state" at the United Nations this month.
A senior Israeli official said Prime Minister Benjamin Netanyahu's inner circle of ministers reached an agreement in principle on the measures Israel may take if the Palestinians ask the U.N. General Assembly for the diplomatic upgrade.
The upgrade could grant the Palestinians, now registered as an "observer entity", access to bodies such as the International Criminal Court, where they could file complaints against Israel.
Israel and the United States oppose the unilateral move by the Palestinians and have called on Palestinian President Mahmoud Abbas to return to peace talks that collapsed in 2010 over Israeli settlement construction in the occupied West Bank.
The Israeli official, who spoke on condition of anonymity, said that if the Palestinians pushed on with the U.N. bid, Israel may cancel the Paris Protocol, a key economic accord it maintains with the cash-strapped Palestinian Authority.
The official added that the government might also adopt portions of a legal panel's report that recommended in July a legalization of dozens of outposts set up by Israeli settlers in the West Bank.
Israeli commentators do not expect decisions on any steps before the result of Tuesday's U.S. election is known.
The Palestinians want to establish a state in east Jerusalem, the West Bank and the Gaza Strip, territories Israel captured in a 1967 Mideast war. Most countries consider settlements Israel has built in occupied territory as illegal under international law.
Frustrated in their request for full statehood last year amid U.S. opposition at the U.N. Security Council, Palestinians have launched a watered-down bid for recognition as an "observer state" -- the same status given to the Vatican.
They are heading for a sure victory in the General Assembly, which is composed mostly of post-colonial states historically sympathetic to the Palestinians, but West Bank diplomats are courting European countries to further burnish their case.
Writing by Maayan Lubell; Editing by Mark Heinrich