Young Fatah dissidents said they were forming a new party, dealing Abbas a blow less than six weeks before a parliamentary election where Hamas, whose power has increased since the start of an uprising in 2000, will challenge Fatah for the first time.
The rift in Fatah's ranks, which could further boost Hamas before the 25 January parliamentary poll, came as Israel launched a new round of air strikes in Gaza and Palestinian fighters increased their rocket attacks against the Jewish state.
An Israeli missile strike in northern Gaza late on Thursday targeted roads leading to areas where Palestinian fighters launch rocket attacks, the army said. Palestinian medics said two people were injured in the strike.
Defying Abbas, a younger generation of Fatah leaders led by Marwan al-Barghuthi, the movement's jailed leader, announced on Wednesday night that they were running for parliament on a competing ticket, triggering one of the gravest crises in Fatah's 40-year history.
The official Fatah list presented with Abbas's approval included Ahmed Qurie, a former Yasser Arafat loyalist. Qurie resigned as prime minister on Thursday, as required by law for cabinet members running for parliament.
There was no immediate word on who would replace him.
Meanwhile, a Palestinian official said that preliminary results showed that Hamas swept the latest round of municipal elections in key West Bank cities, beating Fatah to take control of the councils of Nablus and al-Bira.
A Palestinian official who helped administer the poll said Hamas won about the same number of seats as Fatah in the town of Jenin, while Fatah retained control of the city of Ram Allah, where the main government and parliamentary offices are located.
Hamas has beaten Fatah to take
control of two major city councils
Final results were expected by the end of the week.
Hamas had made strong gains in previous voting rounds, especially in Gaza, where its power has strengthened further since Israel quit the area in September.
Sworn to Israel's destruction, the group could undermine Abbas's peace efforts with Israel if it gains power in parliament.
Fatah's younger generation has voiced fears that continued domination by the old guard, widely viewed as tainted by corruption and cronyism, will benefit Hamas.
Unhappy about not getting enough slots on the party ticket, the Fatah dissidents registered their own list, prompting Fatah officials to begin contacts to unify the group, long a dominant force in Palestinian politics.
Abbas and al-Barghuthi, who is serving five life terms in an Israeli prison over armed attacks, spoke by phone and agreed to further discussions. Al-Barghuthi's supporters believe that he could be freed in a future peace deal.
Saeb Erekat, the Palestinian negotiator, said: "We will employ every damage-control mechanism to avoid Fatah's division."
Qaddura Fares, a Palestinian legislator who is also part of the new party's roster, said al-Barghuthi had told aides to remove his name from the Fatah list. Others said they were not quitting Abbas's group.
Detained Fatah leader Barghuti
remains a highly popular figure
Abbas is also struggling to contain unrest among disaffected Fatah fighters in Gaza, an impoverished area viewed as a testing ground for Palestinian statehood in the wake of Israel's withdrawal.
Persistent violence despite a nine-month-old truce has reduced the chances of resuming peace efforts, which have been on hold as Ariel Sharon, the Israeli prime minister, prepares to campaign for re-election in elections in March.
Violence has surged since a Palestinian bomber killed five Israelis on 5 December and Israeli air raids killed four fighters in Gaza on Wednesday, while Palestinian rocket attacks from the area have increased.
Several rockets fired by Gaza fighters landed in Israeli towns on Thursday, causing no casualties. One was found near the city of Ashkelon for the first time since August 2003.