The Palestinian prime minister dissolved his Cabinet in an emergency meeting in what appeared to be a gesture inspired by unrest rocking the Arab world.
The official Wafa news agency said the move was intended to prepare for general elections planned later this year. Prime Minister Salam Fayyad now has six weeks to name a new Cabinet.
President Mahmoud Abbas accepted Fayyad's decision after the Cabinet meeting.
Abbas' Palestinian Authority has announced a series of dramatic moves following mass protests that ousted rulers in Egypt and Tunisia over the past month. The protests have spurred calls for democracy throughout the Middle East, a region dominated by monarchs and autocratic leaders.
The Palestinians are also dealing with the fallout from embarrassing media leaks about past peace talks with Israel. Together with deadlock in peace efforts with Israel, these developments have put pressure on Abbas to press forward with reforms.
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The Palestinian government said over the weekend that it would hold long-overdue general elections later this year, weeks after saying it would hold local elections in July.
The chief peace negotiator, Saeb Erekat, also resigned in response to the leaks broadcast by the Al-Jazeera satellite channel, which detailed far-reaching concessions that his government was prepared to make to Israel to form a future Palestinian state.
