My wordpress 3.4.2 site have 25 activated plugin, so which is safest way to update ?
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Back up all your files and database And then install wp3.5 and activate each plugin one by one and see whether they are compaitable or not
OR you can install a wp3.5 in any other subdomain(domain.yoursite.com) and then activate all those plugins and see if they are compaitable or not
Load it into a development / test environment and test every function on every page. If things break, turn off plugins until they stop breaking. If that doesn't work, switch theme to Twenty* and try again.
Since the release of v3.5, there's been a spate of plugin updates trying to catch up. If you are worried about incompatibility, wait a few weeks while all the major plugins catch up, and WP 3.5.1 comes out.
Even then, I suggest you test in a development / test environment before updating your live site. It only makes sense!
If I have doubts if updating is safe, I wait until the next version is available - for example in this case 3.5.1
It is not just the functionality I am worried about. With the major releases WordPress ships a bunch of new functions, and if there are any security issues, they are usually fixed in the 3.5.1 version.
Most of the time, it is safe to update, speaking just of the WordPress installation.
So if you run a lot of third party Plugins, be sure they are updated regularly. This advice is not just for Updating WordPress, it is general for using Plugins. If you are dependent on one Plugin, and it is discontinued, you could be in big trouble.
For updating the plugins, as @vaibhav mentioned, do it one by one, if you are not sure.
If running multiple Websites (not Multisite, just a few different Websites), create one Test System where you use the Plugins used on most of the Productionsites, and update them - this saves you a lot of time compared to checking each Plugin on every Website.
Be aware of what your Plugins actually do, and check if WordPress made updates to this functions. For example, with the new Media Library in WordPress 3.5 a client of mine could not find the "Replace File" function that was added by a Plugin. I did not notice that, because everything worked fine on the Website, and I did not check the full environment if all the functionality is still there. Keep an eye on that :)
You can also look for the plugins' page whether they support Wordpress 3.5 or not.