There are fears Israel will see America's veto at the United Nations as a "licence to kill" in the Jewish state's bid to get rid of Yasir Arafat.
A war of words erupted between UN members within hours of the resolution - demanding Israel neither harm nor deport Arafat - being tabled.
The resolution fell after America voted against the motion, while Britain, Bulgaria and Germany abstained leaving the remaining 11 members voting for.
It takes just one veto from a permanent member to kill off any motion.
"It's a black day for the United Nations and for international law," said chief Palestinian peace negotiator Saib Uraikat on Tuesday.
"I hope that Israel will not interpret the resolution as a licence to kill President Arafat."
But Dore Gold, an adviser to Israeli Premier Ariel Sharon and a former Israeli ambassador to the United Nations, told Reuters: "Israelis are asking themselves, 'Where was the UN Security Council when Israeli citizens were slaughtered last week in two suicide bombing attacks?' "
The resolution, drafted by Palestinian UN envoy Nasir al-Kidwa, urged Israel - which has threatened to "remove" Arafat - to "desist from any act of deportation and cease any threat" to his safety. It was then sponsored by Syria.
Arafat has denied encouraging bloodshed in a three-year-old Palestinian uprising for statehood.
**Israel cautioned***
"Israel found itself in an Orwellian situation by which its war on terrorism was to be judged in a Security Council resolution sponsored by Syria, one of the main state supporters of terrorism in the world," Gold said.
But Syrian UN envoy Faisal Mikdad called the veto "regrettable" and said Israel "should not be a member of the United Nations because it is not a peace-loving country.
"Syria believes that Israel is responsible for its illogical policy and Israel is as well responsible for having scuttled the peace process in the Middle East," he said.
After the vote, US Ambassador John Negroponte joined other council members in warning Israel the veto did not mean it should harm Arafat or send him into exile.
The Israeli decision last week to "remove" Arafat, followed by comments that it was considering killing him, has unleashed a flood of international indignation.
**Massacre recalled***
During nearly eight hours of harsh debate in the 15-nation Security Council on Monday, more than 40 governments condemned the decision to get rid of Arafat.
As he addressed the Security Council after the vote, al-Kidwa recalled the 1982 massacre of Palestinian refugees in Lebanon by Israeli-backed Lebanese Christian militia.
The massacre took place while Israeli Prime Minister Ariel Sharon was defence minister. Sharon was later found indirectly responsible by an Israeli enquiry and sacked from his post.
"Just to remind you that today is the 21st anniversary of the massacre of Sabra and Shatila. Do you remember that? Do you remember Mr. Sharon?" al-Kidwa said.
**PHOTO CAPTION***
United States ambassador to the U.N., John Negroponte casts his vote against a Middle East resolution during a security council meeting Tuesday, Sept. 16, 2003 at the United Nations headquarters in New York. (AP Photo/Julie Jacobson)