Palestinian Prime Minister, Salam Fayyad, resigns in big blow to the peace process

Mr Fayyad has quit after clashes with Palestinian President Mahmoud Abbas

Western diplomats hold Mr Fayyad in very high regard and believe his presence is crucial for progress in peace talks (EPA)

Salam Fayyad has resigned as Palestinian Prime Minister, throwing into doubt the future of the Palestinian Authority and the peace process with Israel.

Mr Fayyad, a Western-educated economist and former International Monetary Fund official, had offered his resignation last week, which was accepted by Mahmoud Abbas, the PA President, this evening.

According to a statement, Mr Abbas asked the outgoing prime minister to head an interim government until a successor is found. “Fayyad met Abbas for half an hour in the president’s headquarters in Ramallah in the West Bank and officially handed him his written resignation,” an official told the AFP news agency.

Relations have been strained between the two men for more than a month, since the resignation of the PA finance minister, Nabeel Qassis. Mr Fayyad accepted the resignation, but Mr Abbas rejected it. The incident was the latest in a number of clashes between the two men over the economic policies of the Fatah-led PA.

Mr Fayyad held the finance brief as well as that of prime minister until Mr Qassis’s appointment last year. A planned meeting between the prime minister and the president was postponed on Thursday amid American pressure. US officials insisted as recently as Thursday afternoon that Mr Fayyad would be “sticking around”.

Mr Fayyad’s departure is a big blow to the peace process, which has been given fresh impetus in since last month’s visit to the region of Barack Obama who has pushed both Palestinian and Israeli officials towards renewed negotiations.

Western diplomats hold Mr Fayyad in very high regard and believe his presence is crucial for progress in peace talks, which have made entirely moribund for nearly three years. Israeli officials frequently describe Mr Fayyad as a “partner for peace”.

It is internal wrangling over the PA’s economic policy that has brought an end to Mr Fayyad’s premiership, however - the Fatah Revolutionary Council, which dominates the PA, openly attacked Fayyad’s economic policy last week. The PA has said in recent months that it risks going into bankruptcy without the flow of foreign aid, which supports its activities.