Sunday night’s announcement aims to reinstate security in Palestinian areas currently controlled by resistance groups.
"The declaration of emergency is meant to bolster the principle of one Palestinian Authority and maintain the rule of law, because our situation is very, very critical," said a senior Palestinian official who asked not to be identified.
But if the past is any indication, Arafat’s decree may prove hard to fulfil since Palestinian security services have been seriously damaged after multiple Israeli invasions and blockades.
It also comes in the wake of Arab and Israeli attacks and threats of further action by Palestinian resistance groups.
The eight-member emergency cabinet, unveiled by Prime Minister Ahmad Quraya, includes long time Arafat ally Major-General Nasir Yusuf as interior minister.
"Our situation is very, very critical"
Senior Palestinian official
Meanwhile, two US favourites, Salam Fayyad and Nabil Shaath, will retain the finance and foreign affairs posts respectively.
Response to bombing
The new cabinet – a third of the size of its predecessor – does not require a parliamentary vote of confidence owing to its emergency status.
Aljazeera correspondent Shireen Abu Aqla reports the announcement of the new cabinet and security function was prompted by Saturday’s Haifa bombing which killed 19.
Israel responded to the Haifa bombing by attacking a Palestinian refugee camp in Syria. It also reiterated its threat to expel Arafat.
After the Israeli air raid in Syria, the Palestinian group Hamas said it would retaliate because Israel had attacked a Palestinian target.
Quraya’s predecessor, Mahmud Abbas, resigned a month ago over what he called Arafat's obstruction of his efforts to take over security services, and Israeli military strikes, which he said provoked resistance groups and undermined his position.