A defiant Arafat, grinning broadly, emerged from his sandbagged office building shortly after the announcement, flashing victory signs to thousands of supporters who rushed to his headquarters to protect the Palestinian leader from what they feared would be an immediate Israeli move to seize him. "The leader is Abu Ammar," the crowd chanted, referring to Arafat by his nom de guerre.
Using a bullhorn, Arafat recited a passage from the Quran, the Muslim holy book, about being steadfast in the face of an oppressor. He also said: "We are on sacred land, and we will protect our holy Christian and Muslim places. We send a message to the detainees, and to the prisoners, together all the way to Jerusalem."
He then led the crowd in a chant, waving his finger in rhythm: "To Jerusalem, to Jerusalem, to Jerusalem."
Palestinian protests erupted across the West Bank and Gaza Strip. In Gaza City, hundreds of gunmen rushed to the parliament building, some firing in the air. Thousands of marchers carried Arafat posters and flags, chanting: "Sharon, listen well, we will send you to hell."
The ambiguous and ominous Israeli announcement came after a three-hour meeting of the 11-member security Cabinet — the most exhaustive discussion yet by Israel on Arafat's fate — and it appeared to be broadly hinting at an upcoming expulsion.
As CBS News Correspondent Richard Roth reports, Israel's options range anywhere from expelling him from the region -- which the U.S. opposes -- to tightening the seige around him. Currently, he is only kept from leaving, but Israel could cut off his access to outsiders and communications.
Sharon is under increasing pressure at home to take dramatic action that would somehow break the bloody three-year deadlock with the Palestinians and satisfy the public's desire to take revenge for continued terror attacks, including twin suicide bombings by Hamas that killed 15 Israelis this week.
Opponents of expulsion warned it would only trigger more violence, weaken moderate Palestinian leaders and even boost Arafat's influence. Proponents said Arafat has sabotaged peace efforts and prevented a crackdown against militant groups by the Palestinian Authority.
In Washington, U.S. State Department spokesman Richard Boucher reiterated that the Bush administration is opposed to expelling Arafat. "We think it would not be helpful to expel him because it would just give him another stage to play on," he said. Israeli media said U.S. officials called Sharon to underscore the point.
"The Israeli government is very clear on what our views are on these things and I think understands clearly our position," Boucher said.
Aware of the debate raging over his fate, a defiant Arafat said Thursday, before the Cabinet announcement, that he would never leave voluntarily and fully expected to be killed. "This is my homeland," he told reporters at his sandbagged West Bank headquarters, to which he has been confined by alternate Israeli sieges and threats for nearly two years. "No one can kick me out."
The Palestinian prime minister-designate, Ahmed Qureia, said expelling Arafat would destroy the last prospects for peace. "We call upon all wise people in the world to stop this crazy decision," he said. Arafat spokesman Nabil Abu Rdeneh said Israel was "playing with fire."
It's a sign of the public mood in terror-scarred Israel, reports CBS News Correspondent Robert Berger. People are fed up with the man they blame for three years of suicide bombings and shootings, says Berger.
However, many analysts believe killing Arafat would make matters worse. They say it would create a power vacuum and chaos, similar to the situation in Iraq.
Former Prime Minister Shimon Peres, head of the moderate opposition Labor Party, told a U.S. network that expelling Arafat would be a "historic mistake" that would "deepen the hostilities between the Palestinians and ourselves."
Egyptian President Hosni Mubarak, in Rome, warned Israel against expelling Arafat, saying it would lead to terrorism and unknown grave repercussions
The security Cabinet had also weighed other options, including tightening Arafat's isolation by keeping away all visitors and cutting off phone lines. In previous sieges, Israel briefly cut Arafat off from the outside world, but quickly restored phones, water and electricity under intense international pressure.
As a possible warning, Israeli troops earlier Thursday set up positions on two tall buildings overlooking Arafat's headquarters, and F-16 warplanes repeatedly flew overhead.
Security officials said the army has begun preparations for Arafat's quick ouster, in the event of a go-ahead from the Cabinet. Israeli media reported several months ago that under an army's contingency plan, Arafat would be flown out of Ramallah by helicopter, and that Israeli commandos have scouted locations for a dropoff.
Sharon's office said after the security Cabinet meeting that Israel will press ahead with its war on Palestinian militants "until it is convinced ... that the Palestinian Authority is taking real action toward the dismantling and destruction of the terror organizations."
"The events of recent days have proven again that Yasser Arafat is a complete obstacle to any process of reconciliation," the statement said.
"Israel will act to remove this obstacle in the manner, at the time, and in the ways that will be decided on separately." This means Sharon and Defense Minister Shaul Mofaz could decide at any time to kick out Arafat, without convening the Cabinet again for approval.
The choice of words was intentionally vague, Israeli officials said, not referring explicitly to expulsion but only removal. Israeli media said one possibility would even be killing the Palestinian leader, and the Jerusalem Post newspaper in an editorial openly called for this in an editorial.
The Israeli statement also said Israel will settle for nothing short of a dismantling of armed groups, rejecting of an offer by Ahmed Qureia, the Palestinian prime minister-designate, to negotiate a cease-fire with Israel.
The security Cabinet suggested that Arafat could be expelled if Qureia fails to take quick action against the militants. Qureia has given no indication that he would deviate from the policy of his predecessor, Mahmoud Abbas, who shied away from confrontation with the Hamas and Islamic Jihad groups for fear of sparking internal fighting.
A Palestinian decision Thursday to put all security services under the command of a national security council headed by Arafat also made a crackdown unlikely.
The United States and Israel have demanded that Arafat relinquish control of all armed forces, but the Palestinian leader has balked at the idea. Arafat's wrangling with Abbas over command of the security forces were key to the prime minister's decision last week to resign.
The security Cabinet reserved decision on a possible reoccupation of the Gaza Strip, where most Hamas leaders live. The military is reluctant to take over crowded Gaza because an invasion would require a reserves callup and cost many Israeli casualties, a security official said. Also, the bombers have almost all come from the West Bank, which Israel already effectively controls.
For now, the army prefers to stick to air strikes against Hamas leaders. Thirteen Hamas members and six bystanders have been killed in such attacks in the past three weeks. On Wednesday, warplanes dropped a half-ton bomb on the home of Hamas spokesman Mahmoud Zahar, wounding him and killing a son and a guard.