Palestinian Prime Minister Ahmed Qureia has announced the formation of a new cabinet and has backed down from a confrontation with Mr Yasser Arafat.
The outcome has left Mr Arafat in firm control of the security forces, threatening to complicate efforts to restart talks with Israel and begin implementing the US-backed "road map" peace plan.
Israel and the United States had pushed for the disparate Palestinian security forces to be consolidated under the prime minister in preparation for a crackdown on Palestinian militant groups.
The new Cabinet, comprising 24 ministers including Mr Qureia, will be presented to parliament for approval on Wednesday. The political fight with Mr Arafat centred on Mr Qureia's efforts to consolidate the various security forces under a single interior minister, General Nasser Yousef, in line with US expectations.
Mr Arafat succeeded in putting a hand-picked confidant, Mr Hakam Balawi, into the post, while keeping the security forces under different commands.
"This is a sad day for reform, because we see that the control of the security services remains in the hands of Arafat's cartel of terror," said an adviser to Israeli prime minister Ariel Sharon.
