Palestinians prepare U.N. upgrade despite U.S., Israel warnings UNITED NATIONS (Reuters) - The Palestinian Authority circulated a draft resolution to U.N. member states on Wednesday that calls for upgrading its U.N. status to that of an "observer state" despite U.S. and Israeli suggestions that the Palestinians could face retaliatory moves. The draft resolution, which could be put to a vote in the 193-nation U.N. General Assembly later this month, also reiterates the Palestinian Authority's commitment to the "two-state solution" in which Israel and an independent Palestinian state would co-exist in peace. If approved, the resolution would "accord to Palestine Observer State status in the United Nations system, without prejudice to the acquired rights, privileges and role of the Palestine Liberation Organization as the representative of the Palestinian people," according to a draft obtained by Reuters. The Palestinians are currently considered an observer "entity" at the United Nations. Acceptance of the Palestinians as a non-member state, similar to the Vatican's U.N. status, would implicitly recognize Palestinian statehood. The upgrade could also grant the Palestinians access to bodies like the International Criminal Court in The Hague, where they could file complaints against Israel. The status upgrade seems certain to win approval in any vote in the General Assembly, which is composed mostly of post-colonial states historically sympathetic to the Palestinians. Palestinian diplomats also are courting European countries to further burnish their case. Frustrated that their bid for full U.N. membership last year failed amid U.S. opposition in the U.N. Security Council, Palestinians launched their watered-down bid for recognition as an "observer state," the same status given to the Vatican. Israel and the United States oppose the 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 draft resolution would have U.N. member states express "the urgent need for the resumption and acceleration of negotiations within the Middle East peace process." Palestinian officials said last month they can count on around 115 "yes" votes in the General Assembly, mostly from Arab, African, Latin American and Asian states, and expect around 22 "no" votes, led by the United States, as well as 56 abstentions. U.N. diplomats said no date for a vote has been set. Several Western diplomats said U.S. and European officials are lobbying the Palestinians to persuade them to delay the move to allow newly re-elected U.S. President Barack Obama time to try to restart moribund Middle East peace talks. An Israeli official said earlier this week that if the Palestinians push 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 United States has also suggested that funding for the Palestinians - and possibly some funding for the United Nations - could be at risk if the Palestinians seek a U.N. upgrade. Editing by Will Dunham