The Palestinians say UN acceptance of their state will change the rules of engagement vis-a-vis peace talks with Israel, with the Jewish state being viewed as one UN member state occupying another.

But world powers seeking to avoid a head-on confrontation at the Security Council are pushing the Palestinians to instead approach the General Assembly with a draft resolution calling for their status to be upgraded from "observer" to "non-member state".

Upgrading their status to non-member state - the so-called "Vatican option" - could be one such compromise.

It would allow the Palestinians to become a full member of UN agencies such as the World Health Organisation, the child welfare agency UNICEF and the UNESCO world heritage body.