A top Arafat aide confirmed that the internal row – which saw Quraya offer his resignation – had ended.
"The prime minister and his cabinet who were sworn in by Arafat, will continue their mission until the end of the month according to Palestinian law ... following agreement between Arafat and Abu Ala," Nabil Abu Rudeina said, using Quraya's nickname.
"Nasr Yusif will be the interior minister but he will be sworn in later," he told AFP, without giving further details.
The powers of what will essentially be an emergency cabinet, would be "effective immediately", he added.
Arafat and Qorei had been locked in an ugly dispute over the nature of the new Palestinian cabinet, and the delegation of powers within it.
Earlier on Saturday, efforts by the Fatah central committee to resolve the struggle ended in failure.
The dispute focused on the powers of the eight-member cabinet headed by Quraya and particularly those of his interior minister-designate, General Nasr Yusif.
The government, which was installed by decree, has yet to be approved by parliament after a session scheduled for Thursday was postponed indefinitely.
It was the second time this year the Palestinian leader had fallen out with a prime minister over his powers.
In September Quraya's predecessor, Mahmud Abbas resigned after less than five months on the job – citing a power struggle with Arafat and the lack of support from the US and Israel.