Prime minister Salaam Fayyad has resigned, leaving the Palestinians without one of their most moderate and well-respected voices just as the US is launching a new push for Middle East peace.
A statement from the official Palestinian news agency Wafa said President Mahmoud Abbas met Mr Fayyad late on Saturday and accepted his resignation, thanking him for his service.
According to the statement, Mr Abbas asked Mr Fayyad to continue to serve in his post until Mr Abbas forms a new government.
Mr Abbas was expected to name a new prime minister within days, according to Palestinian officials.
Mr Abbas and Mr Fayyad had been locked in an increasingly bitter dispute over the extent of the prime minister's authority.
Mr Fayyad's departure could spell trouble for Mr Abbas. Mr Fayyad, a Western-trained economist, is well respected in international circles, and he is expected to play a key role in US efforts to revive peace talks.
As part of that effort, US Secretary of State John Kerry has said he plans to announce a series of measures to boost the West Bank economy in the coming days.
Mr Fayyad, a former official at the International Monetary Fund, with expertise in development, would be key to overseeing such projects.
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