Palestinian Prime Minister Salam Fayyad submitted his resignation on Saturday, which could set the stage for a power-sharing agreement between Palestinian moderates and militants.
Fayyad was appointed prime minister by Palestinian President Mahmoud Abbas in June 2007, after Hamas took control of Gaza.
Fayyad and Abbas have controlled the West Bank since then, while Hamas has remained in power in Gaza.
Fayyad's resignation comes ahead of Palestinian reconciliation talks, which are scheduled to begin Tuesday in Cairo. Negotiators from both Hamas and Abbas's Fatah movement will attempt to form a transition government before presidential and legislative elections, which are scheduled to take place by January 2010.
On Saturday, Abbas said he hopes to form a transition government by the end of March.
Saturday's announcement "comes to enhance and support the national dialogue to reach a national unity government," Abbas said.
Fayyad would step down from his post when a new government is formed and no later than the end of March.
However, if the negotiations fail, Abbas aide Nabil Abu Rdeneh said the president could reappoint Fayyad.
The move left Hamas leaders unimpressed. They argued that Fayyad's government has been unconstitutional from its beginning.
"This government did not work for the sake of the Palestinians, it worked for its own agenda. This end was expected for a government that was illegal and unconstitutional," said Fawzi Barhoum, a Hamas spokesman in Gaza.
Fayyad, who is a political independent, had a great deal of international support as prime minister.
He brought forward reforms that made government more transparent and deployed Palestinian security forces to former militant strongholds in the West Bank.
Support for Fayyad's government led the international community to pledge billions of dollars in aid for Palestinians.
In 2007, donor countries pledged US$7.7 billion over three years for Fayyad's government. Last week, an international conference on the reconstruction of Gaza ended with donor nations promising another $5.2 billion in funds over two years.
Because the aid was to be funnelled through a Fayyad government, it is unclear if the pledges will be fulfilled after Saturday's announcement.
Meanwhile, Hamas officials have suggested that, if a power-sharing agreement can be reached, elections can be put off, past January 2010, as the two sides improve their relationships with voters.
Relations between Hamas and Fatah soured in January 2006, when Hamas defeated Fatah in parliamentary elections. Mediators tried repeatedly to bring the two sides together without success, and Hamas went on to take power in Gaza by force in 2007.
In response, Abbas fired Prime Minister Ismail Haniyeh of Hamas and appointed Fayyad. At the same time, Israel and Egypt closed Gaza's borders.
A power-sharing deal seems the best option for both parties' survival, particularly as a right-wing government is poised to take power in Israel. Abbas has been unable to negotiate a lasting peace agreement with Israel, while Hamas has not succeeded in getting the borders re-opened.
With files from The Associated Press
