Australian Prime Minister Julia Gillard, a staunch ally of Israel, has suffered a stinging political setback after being forced by her own cabinet ministers to backtrack from an earlier decision to oppose the Palestinian bid at the UN and to order an Aussie abstention instead.

The dramatic showdown, according to reports in the Australian media, came in a closed session of the Australian cabinet on Monday in which Gillard was warned that her party’s Labor caucus in parliament would vote against her original decision to support Israel and oppose the Palestinian move. Such a revolt could very well precipitate a political crisis that could bring Gillard’s government down.

According to the Sydney Morning Herald, two of the main opponents of an Australian vote against the Palestinian request were former Prime Minister Bob Hawke, known for his prominent role in securing the release of Soviet Jewry in the late 1980’s as well as former foreign minister Gareth Evans. The paper reports that Labour politicians expressed concern that by siding with Israel, the party might lose support in many of the heavily Muslim parliamentary districts in Western Sydney.

For the past two decades, Australia has been one of Israel’s closest allies in the international arena, often joining Israel and the United States in being the only countries to vote against anti-Israeli resolutions. The decision to abstain on a UN move to which Israel is so adamantly opposed will be viewed as a significant setback to relations between the two countries. According to newspaper reports in Australia, the Israeli government is “furious” with the Australian decision, though no Israeli spokespeople commented on it publicly.

Gillard told her cabinet colleagues that recognition of Palestine as a “non-member observer state” contravenes the 1993 Oslo accords and would damage the peace process. But her foreign minister, former New South Wales premier Bob Carr, told reporters that the decision to abstain "means that we'll be with a large group of nations and we won't be isolating the Palestinian people and their aspirations."

The Liberal opposition criticized Gillard’s flip flop saying that it viewed a no vote as "the path to peace and reconciliation," the Age reported.