Prime Minister Ahmad Quraya has overrun a Tuesday midnight deadline to announce his lineup of ministers who will replace a 30-day emergency cabinet.
The prime minister’s nomination of General Nasir Yusif as interior minister with control over security forces has proven to be a contentious issue.
Arafat had already extended the term of Quraya's eight-member cabinet, transforming it into a caretaker government, to allow more time to overcome this sharp disagreement on division of security powers.
But it will now need to be extended once again.
The delay threatened to hold up renewed high-level talks proposed by Israeli Prime Minister Ariel Sharon aimed at restarting a stalled "road map" to peace.
But cabinet member Saib Uraiqat, who is close to Arafat, predicted that Quraya's government would act in a caretaker role for another two to three days and no more than a week past the Tuesday deadline.
Israeli media reports had also said that Sharon and Quraya could meet as early as this weekend, though there is scepticism on both sides about the prospects for significant progress after three years of Israeli-Palestinian bloodshed.
Quraya's choice of minister for
the interior has caused a split
Quraya told reporters the Palestinian parliament would convene next week for a confidence vote in a new government.
Differences of opinion
Quraya's predecessor, Mahmud Abbas, resigned in September following a similar dispute with Arafat over security powers.
Hasan Abu Libdah, director of Quraya's office, said earlier that the prime minister wanted his Interior Ministry to have strong security credentials, as his first order of business will be to end armed resistance against occupation forces.
However, Israeli army chief Moshe Yaalon irritated right-wingers last week by suggesting that tough travel restrictions on Palestinians were only driving more of them towards armed resistance.
If Quraya caves in to Arafat, it would likely anger the United States and Israel, which have accused the Palestinian president of fomenting anti-Israel violence - an allegation he denies - and have tried to sideline him.
Commenting on political turmoil in Ram Allah, a US State Department spokesman said on Tuesday that the new Palestinian prime minister must have control of all Palestinian security forces.
"Our view continues to be that the Palestinian prime minister must have control of all the security forces, and that any new cabinet must make clear its opposition to all forms of terrorism," said deputy State Department spokesman Adam Ereli.
The new prime minister must also "take tangible steps to see that terrorists and military organisations not under the control of the Palestinian authority are disarmed and dismantled," he said.
Concerning the latest on the formation of the Palestinian cabinet, "the situation is fluid," Ereli said. "We're receiving a variety of reports. We are obviously monitoring what's going on."