B737-300 flight crew selects VOR/LOC to intercept LOC during LOC back course approach; and autopilot turned away from the course. Before crew can return to desired course manually; towers to the west of final trigger EGPWS terrain warning. Crew complies with warning and is vectored to the ILS for a different runway.

Narrative

Flight to ZZZ planned landing for Runway XXL back course. The Captain was the flying pilot and I was pilot monitoring until I was given the flight controls for the company procedures approach. We were given a 30 degree intercept and were cleared for the approach at about a 12 mile final. The Captain inadvertently selected VOR/LOC; which caused the plane to quickly turn the incorrect way heading southwest. The Captain disconnected the autopilot and turned the aircraft back to the northeast to re-intercept the course. We were just about to ask for vectors to re-intercept the course when the ground proximity announced; 'Caution; Obstacle.' We had briefed the numerous towers on the western side of the approach course. The Captain instructed me to announce a missed approach to Tower. In the process of the Captain executing the map combined with the Ground Proximity caution procedure; we received; 'Obstacle; Pull Up.' The Captain executed the proximity warning procedure and we leveled at 5500 FT with Approach Control. Approach asked if we would like the ILS and we then executed the ILS approach uneventfully. We need to be more aware of selection on the MCP and maintain situational awareness at all times. The FOM clearly states that HDG SELECT must be used and we failed to catch this error. When executing a non-precision or back course procedure we must maintain situational awareness at all times and listen to our approach briefings very intently.