Yasser Arafat told thousands of Palestinians rallying to his side tonight that he would stay put in his headquarters after Israel threatened to expel him.

The Palestinian president was addressing crowds outside his half-demolished West Bank compound, after the Israeli cabinet decided in principle to exile him from the region as an obstacle to peace, an accusation he denies.

A government source said the security cabinet decided to ask the army to prepare a plan for Arafat's exile from the region but decided against immediate expulsion because of US opposition.

A senior Palestinian official denounced Israel's decision, saying exiling Arafat would de-stabilise the Middle East.

The security cabinet, which groups top government ministers and security officials under Prime Minister Ariel Sharon, met to discuss how to respond to two Palestinian suicide bombings which killed 15 people in Israel on Tuesday.