Palestinian President Mahmoud Abbas has returned triumphantly to the West Bank receiving a boisterous welcome from thousands of cheering supporters at a rally celebrating his people's new acceptance to the UN.

Outside the headquarters of President Mahmoud Abbas in Ramallah, some 5,000 people thronged a square, hoisted Palestinian flags and cheered their leader's return from New York.

Large posters of the Palestinian leader, whose popularity had plummeted in recent months, adorned nearby buildings.

"We now have a state," Mr Abbas said to wild applause. "The world has said loudly, `Yes to the state of Palestine’."

The UN General Assembly last week overwhelmingly endorsed an independent Palestinian state in the West Bank, east Jerusalem and Gaza, territories that Israel captured in the 1967 war.

The vote amounted to an international endorsement of the Palestinian position on future border arrangements with Israel and an overwhelming condemnation of Israeli settlements in the areas claimed by the Palestinians.

Earlier today, the Israeli government said it would withhold more than $100m in funds it transfers to the Palestinians each month.

Instead, it said the money - taxes and customs duties that Israel collects on behalf of the Palestinians - would be used to pay off its debts to Israeli companies, including $200m owed to the state-run Israel Electric Corp., government officials said.

The monthly transfers are crucial for the cash-strapped Palestinian Authority to pay salaries to its tens of thousands of civil servants and security forces.

Israel has taken similar measures in the past before eventually releasing the money.