President Bush on Tuesday urged Palestinians to follow Iraq in developing democratic institutions – though critics may wonder which elected bodies he was referring to.
"The Palestinian cause is betrayed by leaders who cling to power by feeding old hatreds and destroying the good work of others," Bush said, clearly referring to Arafat without identifying him by name.
In addition, Bush said Arab states had to cut off funding for Palestinian groups that the US had deemed "terrorist" organisations.
But he admitted Israel had to act to improve the living conditions of the Palestinians before a settlement to the long-running conflict could be reached.
"Israel must work to create the conditions that will allow a peaceful Palestinian state to emerge," Bush said.
US 'encouraging crimes'
But the Palestinian leader implicitly accused the United States of encouraging Israeli "crimes" against Palestinians.
"The Palestinian cause is betrayed by leaders who cling to power by feeding old hatreds..."
George Bush, US president
"The (Israeli) occupiers and the settlers are making the mistake of denying the existence of our people," Arafat told Palestinian deputies gathered in Gaza City via telephone.
"Because of the arrogance of the force which is blindly supported and followed by certain powers, they are committing crimes against our people, our towns, our villages, our (refugee) camps and our infrastructure," he said in an implicit reference to the US.
Arafat has been confined to his headquarters in the West Bank town of Ram Allah for the past 20 months. The Israeli government caused uproar earlier this month when it approved in principle his "removal" - with one minister suggesting he could be assassinated.
"The question today is not about the fate of Yasir Arafat who is being threatened by this extremist Israeli government, but the fate of our native land, independence, dignity and the creation of our independent state with Jerusalem as its capital," added Arafat.
Revisiting a theme outlined in the run-up to the US-led war on Iraq, President Bush said the ousting of Saddam Hussein should serve as a catalyst for democratic change throughout the Middle East.
President Bush says Iraq may
inspire more regional democracy
"Iraq as a dictatorship had great power to destabilise the Middle East," he told the 58th session of the United Nations General Assembly. "Iraq as a democracy will have great power to inspire the Middle East.
"The advance of democratic institutions in Iraq is setting an example that others, including the Palestinian people, would be wise to follow," he said.
The Bush administration has been urging more countries to offer troops and money to help the US-led occupation authority rebuild Iraq.
But most countries, led by powers such as France and Germany, have responded by demanding Washington first plots a quick transition to a democratic Iraqi government.