Zalman Shoval, a senior aide to Israeli Prime Minister Ariel Sharon (news - web sites) warned Israel could annex disputed territories in response.
The possibility of the declaration of a state was raised at a meeting of Palestinian leaders over the weekend, said Yasser Abed Rabbo, who is close to Arafat.
Abed Rabbo said many of those present supported the idea, but did not say whether Arafat was also in favor. However, other participants said the proposal was only raised informally and was not part of the agenda.
Abed Rabbo insisted that declaring independence — which would mean walking away from the U.S.-backed "road map" peace plan — was a serious option.
"We are not discussing this as an academic exercise," Abed Rabbo told a news conference. "We are discussing this as a real possibility."
A statehood declaration would come as a counter move to Sharon's plan to "disengage" from the Palestinians, in the event efforts fail to revive peace talks in coming months.
Such Palestinian action would pre-empt final status talks, Shoval said.
"The (Palestinian) forgoing of the phase of final negotiations with Israel ... would leave options for Israel like annexing certain territories, which is not the present intention of the government," Shoval said.
Sharon's disengagement plan is not meant to establish final borders, which would be decided together with the Palestinians, Shoval said.
Sharon has proposed redeploying Israeli troops, dismantling some settlements and imposing a boundary on the Palestinians. In such an arrangement, the Palestinians would end up with far less territory than they seek for their state.
