how to handle a rebellion- when most of the directs are not happy with their direct manager

I've been through this twice with my current manager. It's a tough situation. Do you know and trust any of the employees who signed the petition? I recommend holding a skip level meeting with 1-2 of the people whom you trust to have an open, but controlled, dialog with them. Involve HR as well. Don't let it turn into a gripe session. Get down to what specific behaviors and examples are causing the issue. We laid it out on several key areas that needed to be addressed. Constant emails with to do lists, stopping by and talking about them for 15-30 minutes for each manager, constant follow up. It was too much communications and with the almost daily stop bys for status, we all felt a lack of trust and authority to get our jobs done. Another area was that he would ask for questions/comments, but then shot them all down and clearly wasn't listening at all to our suggestions. Again, lack of trust and respect. There were some other areas as well.
The first time, HR had a roundtable discussion with him and the employees to constructively discuss some of these topics. Nothing was heated. It was moderated by HR to keep it all respectful. He then was able to hear what we were saying and provide his side (there's always two sides). From there his manager helped coach him a bit. Things got better.
Then years later it all happened again. We went back to his manager (who was different than the first) and he was able to coach him over time. This time my manager didn't know we were disgruntled. Instead his manager just coached him on his style since he saw several of the behaviors himself in various settings.
Since you are the one over manager, you may feel you can be fair to both sides and work it out without ruffling too many feathers. And reassure the employees that there won't be any retribution or punishment from yourself or the manager as this gets worked out. I would also recommend putting the "immediate removal" on the side and let them understand that you should all work through this and you need to understand the underlying issues. He deserves a chance to improve. And you may find that the employees need some improvement as well in their communications, meeting deadlines, etc.
Another reason to involve HR is (hopefully not) that the manager may be engaging in unethical, illegal, immoral behavior. Issues such as discrimination, harassment, hostile work environment, etc. HR would have to deal with that.
Good luck. Let us know how it works out.