RAMALLAH, West Bank (Reuters) - The Palestinians fended off on Tuesday U.S. criticism of their bid for upgraded status at the United Nations, saying the move would improve prospects for a peace accord with Israel, not damage them.

Having failed last year to win recognition of full statehood at the world body, Palestinian President Mahmoud Abbas now seeks a less ambitious promotion to "non-member state", which would likely be approved by a vote in the U.N. General Assembly.

Israel sees the Palestinian campaign as an attempt to circumvent bilateral negotiations deadlocked since 2010 over its Jewish settlements in the occupied West Bank and East Jerusalem - opposition echoed by the United States.

The official Palestinian news agency WAFA said Abbas had sent a letter to U.S. President Barack Obama on Tuesday defending the U.N. drive and reiterating his commitment to peacefully establishing a sovereign Palestine alongside Israel.

"We are taking this step in order to secure the right of the Palestinian people to their land," Abbas aide Nimr Hammad told WAFA, describing the content of the letter.

"The aim is not to isolate Israel, but to secure international recognition that would facilitate negotiations."

On Monday, U.S. envoy to the United Nations Susan Rice said the Palestinian bid "would only jeopardize the peace process".

"Any efforts to use international fora to prejudge final status issues that can only be resolved directly by the parties will neither improve the daily lives of Palestinians nor foster the trust essential to make progress towards a two state solution," she said.

The Palestinians' current U.N. status is an "observer entity". If Abbas wins, that would change to "observer state", granting Palestinians access to bodies such as the International Criminal Court, where they could file complaints against Israel.

The president of the 193-member U.N. General Assembly, Vuk Jeremic, has said the issue will likely be debated in mid-November, after the U.S. presidential election.

The Palestinians need a simple majority for the upgrade, but predict that between 150 and 170 nations will vote in favor.

The U.S. Congress froze some $200 million in much-needed financial aid to the Palestinians after they took their statehood campaign to the United Nations last year.

Western diplomats in Jerusalem say similar sanctions are likely if the Palestinians pursue their latest drive.

(Reporting by Jihan Abdalla; writing by Dan Williams; editing by Crispian Balmer)