Prime minister Ahmed Qorei ended a paralysing crisis in the ranks of the Palestinian leadership by burying the hatchet with Yasser Arafat and agreeing to stay on as premier.
Qorei's announcement, which came 10 days after he tendered his resignation, followed extensive mediation efforts by MPs who said they had secured an agreement by Arafat to implement reforms and crack down on corruption.
"President Arafat demonstrated his confidence in me by rejecting my resignation. I value this confidence that he has placed in me and I will therefore continue in my role," Qorei said.
"I hope that we can now work together," the premier added after a meeting of the Palestinian cabinet in this West Bank town that was also attended by Arafat.
Qorei handed in his notice after a spate of kidnappings in Gaza, including that of the Palestinian police chief.
But Arafat refused to accept the resignation and mediators spent the last week trying to persuade the two men to resolve their differences.
"He agreed to publish an order to investigate any corruption file which is brought to him by our committee," one of the mediating MPs, Mohammed Horani, told AFP.
Arafat "also said that he would order the publication of a law specifying the roles of the security branches and the division of power between the branches.
"We were pleased with this positive position from President Arafat and we will meet him again next week to see how this is being implemented."
Palestinian observers warned however that the reconciliation may not mark an end to the political and security crisis.
"Today is not the end of the crisis. It's just a pause until real changes happen. If they don't, the crisis will erupt again. It is just a matter of time," said Ali Jarbawi.
And Palestinian MP Hanan Ashrawi, who sits on the mediating committee, talked of the need for "radical treatment."
"There are many issues that need to be addressed. We need new laws, commitment to reform and follow-ups to ensure that reform is being carried out."
Qorei had become increasingly frustrated at Arafat's reluctance to loosen his grip on the control of the security services and at the lack of institutional reforms.
His predecessor Mahmud Abbas had resigned last fall after losing a similar power struggle.
Although Arafat slashed the number of security services to three from eight this time around, the move backfired when he promoted his unpopular cousin Musa Arafat as head of general security -- only to demote him after violent protests.
A 17-year-old Palestinian teenager, who was shot and wounded by security services in one of the protests in the southern Gaza Strip town of Rafah, died of his injuries Tuesday.
Arafat has come under increasing international pressure to yield more power to Qorei, with the European Union's top diplomat Javier Solana warning last week that there would be a rethink of the relationship with the 75-year-old leader if Qorei stepped down.
US Secretary of State Colin Powell said Tuesday he wanted to see action from the Palestinians over reforms.
"We need action, not propositions, not proposals, not commitments," Powell said in Budapest at the start of a tour of six European and Middle Eastern countries.
"(We need) consolidation of the security services under the direction of the prime minister. We haven't seen these things happening yet."
Meanwhile, on the ground, two Palestinians were killed early Tuesday in a gunfight with Israeli troops in the eastern suburbs of Gaza City.
Palestinian security sources said one of those killed was a member of the radical Islamic group Hamas. It was not known if the other casualty was a militant.
And in Jerusalem, Israeli police barred Jews from entering the Temple Mount in the annexed Old City on Tuesday for fear of unrest during commemorations for the historic destruction of the first and second Jewish Temples.
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