HERZLIYA, Jan 27 (Dan Williams/Reuters) - An Israeli simulation of reactions to the Palestinian push to declare independence concluded on Thursday that it would isolate and divide Israel but that big powers would not rush to recognise a state declared unilaterally.

The gathering of academics and ex-officials, playing key political roles, saw Prime Minister Benjamin Netanyahu scrambling to calm rightists in his government while Washington urged accelerated peace talks as an alternative to U.N. approval of Palestine within 1967 borders.

The Palestinians are going it alone, but with international consensus behind them, rued Netanyahu -- played by former Mossad spymaster Shabtai Shavit -- during a convincingly harried cabinet debate staged at a leafy college campus near Tel Aviv. Set in next September's United Nations general assembly, the simulation reflected Israeli unease at Palestinians' lobbying for foreign endorsement of their claim to a state embracing all the West Bank and East Jerusalem, seized by Israel in the 1967 war and increasingly taken over for Israeli settlement. In reality, the Netanyahu government has been drafting responses should the Palestinian campaign eventually win big power support, and it had two representatives observing the half-day event at the Interdisciplinary Center (IDC) Herzliya.

Ashraf al-Ajrami, an ex-cabinet minister under Palestinian President Mahmoud Abbas who played him for the simulation, began by seeking a U.N. Security Council resolution recognizing the proposed state and sidestepping his stalled talks with Israel.

The council was split, wary of effectively declaring the end of a negotiated Middle East solution and perhaps stoking a new conflict along disputed frontiers. But, to Israel's distress, the United States threatened not to veto the resolution.

Instead, the Americans proposed new phrasing backing the objective of a Palestinian state with East Jerusalem as its capital, in exchange for Netanyahu's assent to a regional peace summit launching multilateral talks on a six-month timeline.

We're serious now, Obama, played by former Israeli envoy to Washington Zalman Shoval, told a dubious Abbas. If, when the time comes, I have to explain to the Security Council why this failed, I'll be sure to note the responsible party.

ROOMS WITH A VIEW

In what an IDC organizer said was a deliberate tactic, the Palestinian and American delegations had airy, abutting conference rooms. Netanyahu and his partners, meanwhile, crammed into a shuttered, stifling upper-storey office.

That seemed to contribute to the friction between Shavit's premier and those standing in for centrist Defence Minister Ehud Barak and ultranationalist Foreign Minister Avigdor Lieberman.

Barak, played by his real-life party ally Einat Wilf, offered to curb West Bank settlement growth and thus woo Abbas. Lieberman, played by settler-politician Effi Eitam, demanded the Israeli army be deployed to assert and if necessary fight for West Bank control, and threatened to quit the government.

Let's see you hold new elections in the midst of this diplomatic crisis, he told Netanyahu.

Obama tried to shrug off the prospect of a crippling Israeli government shake-up.

The simulation predicted other wild cards.

Those playing the Iranians welcomed the international focus on Israel as a distraction from their controversial nuclear program, and even sent an aid ship to Gaza under naval escort.

Lieberman proposed asking the Americans to bomb Iran in exchange for a hazy Israeli pledge to work with the Palestinians. Netanyahu was reluctant to mix the two issues.

Al Qaeda was seen cooking up a New York attack designed to destroy Middle East reconciliation. But its Gaza branch came under surprising assault from the ruling Hamas party, who then offered to join Abbas in a Palestinian unity government.

When Jordan's majority Palestinians rioted in sympathy with the Abbas campaign, Lieberman was quietly gleeful.

Linking the scenario imagined in the simulation to this month's popular upheavals in Tunisia, Lebanon and Egypt, Lieberman said: No one really thinks (Palestinian) unilateralism is what the region can afford. And Israel stands firm against it, it won't pass.

In the simulation, the Israeli and Palestinian leaderships at no point communicated directly, but Abbas publicly appealed to ordinary Israelis and world Jewry to support a peaceful Palestinian state whose time has come and whose justification is clear.

The Palestinians also instructed their security forces to maintain cooperation with the Israeli military in the West Bank.