The veteran leader’s supporters rallied in tens of thousands, vowing to support him despite the Israeli security cabinet's decision in principle to spirit him out of the Palestinian territories and into exile.
UN Secretary General Kofi Annan said expelling Arafat would be "unwise".
Russia called the plan a "serious political mistake with the most negative consequences," on Friday.
"Such a step would remove the possibility of peacefully
resolving the Israeli-Palestinian crisis and would lead to an
uncontrollable chain of events in the worst case scenario," said a statement issued by Russia's foreign ministry.
A senior US administration official said once again that Washington would not work with Arafat but opposed expelling him because that would only give him "a wider international stage."
French president Jacques Chirac, speaking from Spain before the Israeli decision, said: "Yasir Arafat is the legitimate authority" of Palestinian politics.
"I think, and I believe the European Union also considers that
"I urge Israel not to allow justified anger at the continuing violence to lead to actions that will undermine both the peace process and Israel's own interests"
UK foreign secretary
it would be a serious mistake to try to eliminate him from the
political arena," said Chirac.
Britain said on Friday it would be "wrong" for Israel to expel Palestinian leader Yasser Arafat, and that such a move would undermine both the quest for peace and Israel's own interests.
"We have repeatedly made clear to the Israeli government that the expulsion of chairman Arafat would be wrong," said Foreign Secretary Jack Straw in a statement.
"I urge Israel not to allow justified anger at the continuing violence to lead to actions that will undermine both the peace process and Israel's own interests."
European Commission spokesman De Ojeda said the EU would keep channels open to legitimate Palestinian leaders.
Israel will turn Arafat into a martyr if it carries out its threat, Australian Foreign Minister Alexander Downer added on Friday, while Canada said that the move could destabilise peace efforts.
Israel's decision was also slammed by its Middle East neighbours and peace partners.
Jordan said it was hasty and a "grave error", and Egyptian Foreign Minister Ahmed Maher told US Secretary of State Colin Powell by telephone that it could have horrific consequences.
Indonesia, the world's largest Muslim-populated nation, also condemned Israel's decision, as did Malaysia.
In a rare show of support, an influential US Jewish lobby group has came out in favour of Arafat being sent into exile.
"We are now the first major American Jewish organisation that is now formally calling for Arafat's expulsion," said Rabbi Mavin Hier of the Simon Wiesenthal Centre in Los Angeles.
"Yasir Araft has destroyed every possibility of every peace process and Europe is fooling itself by playing games with Arafat and repeating the mantra that he is leader of the Palestinian Authority."
Smiling assassin: Sharon wants to eliminate Arafat from Middle East politics
Obstacle to peace
Israel's security cabinet led by prime minister Ariel Sharon vowed to "remove" the Palestinian president after a meeting on Thursday, calling him an obstacle to peace.
But, under US and international pressure not to exile Arafat, it gave no time frame for any move against him or make a direct reference to expelling him.
Sharon has previously stated in the past he regrets not having Arafat, his old adversary, assassinated when the opportunity arose some years earlier.
"Not yet", said the mass circulation Maariv daily, referring to expulsion, in a banner headline on Friday.
At his compound in the West Bank city of Ram Allah, where he has been confined for the last 20 months, Arafat blew kisses and flashed the V-for-victory sign at a huge crowd that flocked there in a show of support late on Thursday.
"You are brave people, my loved ones. Abu Ammar is staying here," Arafat said, using his nom de guerre.
"You are the ones who are capable of responding to this Israeli threat," he said, flanked by security guards, as the crowd vowed to support and defend him.
Palestinian Prime Minister-designate Ahmad Quraya responded to Israel's decision by suspending efforts to form a cabinet, saying that expelling Arafat could "blow up" the Middle East.
A year ago, Israeli commandos practised an operation to grab Arafat at his headquarters, bundle him into a helicopter and drop him off in an isolated location in a foreign country, security sources said at the time.
Israeli media reports said an army contingency plan calls for Arafat to be exiled to North Africa.
"It was taken into consideration that there would be armed resistance, so preparations have been made to silence the opposition - but there will be a fight," the Yedioth Ahronoth newspaper quoted an unidentified officer as saying.
Arafat: 'I will not be kicked out'
Arafat keeps a pistol at his side and has said he would be ready to die rather than give himself up.
A resumption of Palestinian attacks on Israeli civilians and soldiers following the collapse of a unilateral truce by the resistance, and a series of Israeli air strikes that have killed 12 Islamic military and political activists and injured scores of bystanders have plunged the region into new violence and all but killed off a US-backed "road map" to peace.
The security cabinet, which groups top government ministers and security officials under Prime Minister Ariel Sharon, met for several hours to discuss how to respond to two suicide bombings which killed 15 people in Israel on Tuesday.
"The events of recent days prove again that Yasir Arafat is the absolute obstacle to any process of conciliation between the Israeli and Palestinian people," Sharon's office said.
"Israel will act to remove this obstacle in a manner that that will be determined separately."
Quraya said that, if implemented, Israel's "grave and adventurous decision would not only blow up the Palestinian territories but also the entire region".
Hatim Abd al-Qader, a member of the Palestinian Legislative Council and Fatah Movement, said of the expulsion threat: @It is an irresponsible and dangerous decision, leading to an immediate end to the peace process.
"If israel carried out such an action, no single Palestinian would hold talks with it."
Israel and the United States have accused Arafat, 74, of fomenting violence during the three-year-old Palestinian uprising for statehood. He denies the charge.
The Israeli decision amounted to an ultimatum to the Palestinians to crack down on Islamic “militant” groups, as mandated under the road map, political analysts said. "It is more of a political threat, an ultimatum," said Eli Karmon, an Israeli counter-terrorism expert.
It also seemed intended to further isolate Arafat and signal to Quraya he must act independently and rein in “militant” groups.