West Bank cheers Mahmoud Abbas after UN vote

The BBC's Yolande Knell said there was a mood of celebration in Ramallah

Palestinian leader Mahmoud Abbas has returned to a hero's welcome in the West Bank after his successful move to upgrade the Palestinians' UN status.

"Now we have a state," he told cheering supporters in Ramallah. "Palestine has accomplished a historic achievement."

On Thursday the United Nations General Assembly voted to recognise the Palestinians as an observer state.

In response Israel halted the transfer of tax revenues to the Palestinian Authority (PA).

The decision, announced on Sunday by the Israeli finance ministry, means 460m shekels ($120m; £75m) will be withheld in December.

Analysis

This was a triumphant return by the Palestinian president to his headquarters in Ramallah. The compound was packed as a large crowd waited in the sunshine singing along to nationalist songs and a brass band.

Mr Abbas's speech was upbeat: "the world is on our side", he said.

But there were references too to "the challenges ahead". A presidential advisor told me that Arab countries would now be asked to help pay the salaries of government workers after Israel's transfer of tax revenue to the PA was stopped this month. He also described Israel's announcement to build 3,000 settler homes as "an act of revenge".

The international community has called on Israel to reverse its settlement plan - believed to affect the sensitive E1 area, a strategic location on the edge of Jerusalem. Several countries, including Britain, have joined Israeli left-wing groups in warning that it could potentially destroy hopes of a two-state solution to the conflict with the Palestinians.

The PA, which governs in the West Bank, is heavily dependant on tax revenues Israel collects on its behalf.

A ministry spokesman told the BBC the money would instead be used to offset the PA's debts, which include millions owed to Israel's electricity company.

'Standing fast'

The Israeli decision was announced as Palestinian President Mahmoud Abbas returned to the West Bank from the UN in New York.

He told thousands of flag-waving supporters in Ramallah that the vote to upgrade the Palestinians' status from "non-member observer entity" to "non-member observer state" had shown the international community stood behind the Palestinian people.

"The march was a long one, and the pressures were enormous," Mr Abbas added. "But we stood fast and we prevailed, because we are the voice of these people."

Mr Abbas also called for reconciliation between Palestinians - a reference to the split between the PA in the West Bank and Hamas in Gaza.

On Friday Israel announced it would move ahead with building thousands of new homes in Israeli settlements in the West Bank, in another apparent response to the UN vote.

At a meeting on Sunday, Israel's cabinet formally rejected the UN's decision.

Prime Minister Benjamin Netanyahu called the campaign for Palestinian statehood spearheaded by President Abbas "a gross violation of the agreements signed with the state of Israel", a reference to peace accords signed in the 1990s.

He said that only negotiations with Israel could lead to the establishment of a Palestinian state.

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