I've been trying to formulate in my mind a nice and concise commentary on this issue, but without success, so I'm just going to go ahead with the "stream of thought' method and just think aloud. I apologise if it turns out to be incomprehensible. Here goes:
A lot of attention has been paid to what will happen to Yasser Arafat, ranging from morbid neocon and zionist calls for his murder, to calls for his deportation, to dire warnings of the consequences of any action on Israel's part.
So much time has passed since Yasser Arafat became the Palestinian leader in that nation's struggle for independance, that most observers look upon this issue with a warped sense of history (or none at all). Zionist hatred of Arafat is so intense that no effort has been spared over the decades, to make sure that he is portrayed in an extremely negative light in the western media. This campaign has been extremely successful, and Arafat is fervently hated outside the Arab world. Why is this?
Since the 1960's, Arafat, as PLO chairman, has been the national leader of the Palestinian people. From the beginning, he turned the PLO into a real government-in-exile for Palestinians, and initialised many institutions (governmental, educational, military, diplomatic, humanitarian) that gave the PLO the legitimacy it needed. In many ways, Arafat is the person who made the Palestinian resistance against zionism into a viable struggle. He organised Palestinian military (or terrorist, of you prefer) resistance, he gained the tangible support of Arab governments (while nevertheless remaining independant and not falling under the influence of any other government), and has managed to keep the dream of Palestinian statehood alive in the minds of Palestinians as well as many non-Palestinians, despite Israel's best efforts over the decades. It is this that has given Arafat a cult leader status among Palestinians. This is the reason why he will remain the center of gravity in the Palestinian power structure as long as he is alive.
I think the best indicator of Arafat's success over the decades has been the lengths to which Israel has gone to attack the PLO. Examples of this are the invasion of Lebanon and the long range bombing of the PLO headquarters in Tunis by the IAF.
The PLO and its splinter groups (mostly its splinter groups, actually) carried out many attacks against Israeli military and civilian targets over the years. Israel is a western creation, and so the PLO has always found the task of portraying its actions as legitimate acts of resistance, to be impossible. Even attacks against Israeli military targets are commonly described by western news agencies as terrorist acts. Israeli atrocities, meanwhile, often go virtually un-reported or are deliberately ignored. The extent to which the western media has distorted the history of this conflict for westerners is not to be underestimated.
All this considered, I am sure that Israel has had many opportunities to kill Arafat, and the fact that they never did can only mean that he is worth more to them alive than dead. My theory is that Arafat gives the Israeli people and westerners an easily-defined object of hatred and fear, which the propagandists can use as a tool in their support for Israel. Arafat has always enjoyed and exploited the lime-light, so he manages to play into Israeli hands in this respect. For example, his reaction to the Israeli government's declaration that he was "Bar Gerush" (deportable) - was predictable. He went through the motions, speaking to a large noisy crowd, talking about martyrdom, etc. and generally feeding both his Palestinian and western listeners the kind of rhetoric they expected to hear. He himself knows that it is extremely unlikely that he will be either deported or murdered.
Whether he is killed or dies of natural causes (Arafat hasn't looked very zippy for quite some time now), his passing will be a major obstacle for the Palestinian struggle. Not because he is such an important leader (those days passed many years ago), but because too much power is concentrated in his hands. If he goes, there will be a large power vacuum, which Israel will fully exploit to weaken the Palestinian cause as much and for as long as possible.
I don't think that the Israeli government will be so rash as to murder Arafat, since this would create the self-defeating effect of re-establishing the Palestinian cause as the number one concern of the Arab masses. Arafat's assassination would get so much press that the Palestinian movement could only benefit. Furthermore, the PA might cease to be the main power center for the Palestinians, and we might see the ascension of the much more radical Hamas into power.
On the other hand, here's a wild theory: Perhaps Israel will kill or deport Arafat, counting on a bloodthirsty response by Palestinian organisations like Fatah and Hamas, and vociferous condemnations and threats by Arab and Muslim leaders. Israel has always benefitted by portraying itself as being under constant threat of attack, and while I doubt that killing Arafat would provoke an actual war with any Arab country, I am sure that all efforts towards peace would be rendered useless for years. Sharon could then do whatever he wanted; such as massively expand settlement activity, and carry out ethnic cleansing operations in the occupied territories, even invade a neighboring country to gain more "buffer zone" territory.
Then again, this could all be more bluster on the part of the Israelis, and no real action will be taken against Arafat. It's happened many times before. As for Arafat being "Bar Gerush", I'm sure it's nothing new for him.