Concerns are growing in Israel's government over the possibility of a unilateral Palestinian declaration of independence within the 1967 borders, a move that could potentially be recognized by the United Nations Security Council.

The reports indicated that Palestinian Prime Minister Salam Fayyad has reached a secret understanding with the Obama administration over U.S. recognition of an independent Palestinian state. Such recognition would likely transform any Israeli presence across the Green Line, even in Jerusalem, into an illegal incursion to which the Palestinians would be entitled to engage in measures of self-defence.

In late August Fayyad presented the international community with a detailed plan for building up Palestinian Authority institutions and set a timetable of up to two years for its implementation. Senior Israeli officials said Fayyad's plan initially met with positive reaction in Jerusalem for its emphasis on institution-building and making security services more efficient.

But some Israeli officials told Haaretz that alongside the clauses reported in the media - which are similar to elements of Netanyahu's call for "economic peace" between Israel and the Palestinians - Fayyad's plan also contains a classified, unreleased portion stipulating a unilateral declaration of independence.

The plan specifies that at the end of a designated period for bolstering national institutions the PA, in conjunction with the Arab League, would file a "claim of sovereignty" to the UN Security Council and General Assembly over the borders of June 4, 1967 and declare Palestine an independent state with Jerusalem as its capital.

The Israeli settlers who did not wish to be ruled by a Palestinian Government
would return to live in Israel while Palestinian refugees would take up residence in the empty settlements.