RAMALLAH, West Bank, Feb 18 (Reuters) - Palestinian President Mahmoud Abbas on Friday turned down Washington's request to withdraw a UN Security Council resolution demanding Israel halt settlement expansion on occupied Palestinian land.

The decision was made unanimously by the Palestine Liberation Organization's executive and the central committee of Abbas's Fatah movement, at a meeting to discuss US President Barack Obama's appeal to Abbas by telephone on Thursday.

The Palestinian leadership has decided to proceed to the UN Security Council, to pressure Israel to halt settlement activities. The decision was taken despite American pressure, said Wasel Abu Yousef, a PLO executive member.

A PLO official confirmed the vote was unanimous. The UN Security Council was scheduled to start discussions later on Friday on a draft resolution that Arab states submitted in January, demanding that Israel halt settlement activities in the West Bank and East Jerusalem.

We hope that the U.S. administration will not obstruct the issuing of this resolution, said Yasser Abed Rabbo, a senior Abbas aide and PLO executive member. Over 137 states support our endeavour. We are not giving in to any pressure.

The Palestinians say continued building flouts the internationally-backed peace plan that will permit them to create a viable, contiguous state on the land after a treaty with Israel to end its occupation and 62 years of conflict.

Israel says this is an excuse for avoiding peace talks and a precondition never demanded before during 17 years of negotiation, which has so far produced no agreement. Obama, who has said Israeli settlements in territories it captured in a 1967 war are illegal and unhelpful to the peace process, is opposed to a UN move that in Washington's view could shatter hopes of reviving the stalled talks.

In a 50-minute phone call, he asked Abbas to drop the resolution and settle for a non-binding statement condemning settlement expansion, Palestinian officials said. Abbas on Friday received a follow-up call from Secretary of State Hillary Clinton on the issue, the Palestinian news agency Wafa said.

Asked if the rebuff to Obama was a risk, Abed Raddo said: The real risk is if we hesitate when freedom of the Palestinian people is at stake.

FEAR OF POPULAR REVOLT

A Palestinian official, speaking before the formal decision, said a U-turn would be a political catastrophe. People would take to the streets and would topple the president, he said, noting the wave of protest in the Arab world that swept out the Egyptian and Tunisian presidents.

The diplomatic standoff is now complicated by the effects of Middle East turmoil on the Arab League, whose members backed the draft resolution. Egypt, a dominant member, and Tunisia are preoccupied with transitions from deposed autocracies, and protests are flaring in Libya, Yemen and Bahrain. Washington is trying to revive peace talks stalled since September over Israel's refusal to extend a moratorium on settlement building and Abbas's refusal to negotiate further until the Israelis agree.

Obama initially pressured Israel, Washington's closest Middle East ally, to maintain the moratorium.

Obama told Abbas he would back a fact-finding visit by a delegation of the Security Council to the occupied territories.

One PLO official said the leadership was determined not to cave in even if our decision leads to a diplomatic crisis with the Americans, adding: Now we have nothing to lose.

UN sources in New York say no one wants to see a US veto should a resolution unacceptable to Obama be put to a vote. But the Palestinian leadership feels backing off is not an option. One option, however, is to take no action on the draft.