On February 8 Saudi-sponsored negotiations in Mecca produced agreement on a Palestinian national unity government signed by Mahmoud Abbas, on behalf of Fatah, and Khaled Mashaal, on behalf of Hamas. The agreement included measures to end the internecine violence, a key for distributing portfolios and the text of a letter of appointment to be given by Abu Mazen to the new government, and steps to incorporate Hamas and Islamic Jihad into the Palestine Liberation Organization. In addition, there is apparently an understanding to hold early presidential and parliamentary elections in early 2008 if the experiment in national unity government proves to be a failure. Nine portfolios will be given to Hamas, six to Fatah, four to other parties, and five (including the central ministries of Foreign Affairs, Finance and Interior) to independents. The Interior Ministry controls most of the security forces and was the most contentious issue, and it was agreed that Abu Mazen will choose the minister from a list of independents recommended to him by Hamas. The prime minister will remain Ismail Haniyeh, a Hamas leader. In the letter of appointment, the new government is called on to achieve Palestinian national goals as approved by the Palestine National Council, the clauses of the Basic Law and the National Reconciliation Document (the "Prisoners' Document") and the decisions of the Arab summit. The letter also calls on the new government to respect international and Arab resolutions and the agreements signed by the Palestinian Liberation Organization. This formulation represents a compromise between Fatah's attempt to get wording that would accept the three demands of the international Quartet (renunciation of terror, recognition of Israel and endorsement of signed agreements), thus bringing about an end to the sanctions imposed by the Quartet and Israel, and Hamas's desire to avoid any commitments that contradict its basic ideology and positions. This formula allows Fatah to claim that respect for the agreements, PNC decisions and Arab League resolutions (including the Beirut Summit resolution that endorsed the Saudi Initiative) imply an undertaking to abide by the agreements, to recognize Israel and work to end terrorism. At the same time, it enables Hamas to claim that it did not agree to recognize Israel or to confront the "armed struggle." Hamas's major concession was giving up its insistence on abiding only by those agreements that "serve the interests of the Palestinian people." Fatah's concession was its willingness to accept ambiguous formulations that may not satisfy the Quartet, as the representative of the international community, and may therefore not bring about the end of the sanctions imposed on the current government. In any case, this formulation, in addition to Hamas' agreement that the foreign minister, defined as an independent, will actually be chosen by Fatah, gives Abu Mazen enough room to claim that he has a mandate to pursue a political process with Israel. What will be Hamas's role in managing the process and will it be able to torpedo any political moves? These remain open questions. The two sides reached this compromise after several rounds of violent conflict that convinced them that they would both lose from a continuation of the violence. The compromise was therefore preferable for both, despite the costs involved. Abu Mazen's interest in an agreement led him to ignore the reservations of his patrons in the US administration, some of whom would have preferred a Fatah victory over concessions to Hamas and lack of full compliance with the Quartet's demands. The ball is now in the court of the international actors and Israel, who have to decide whether this formulation marks a move toward acceptance of the Quartet's conditions and allows them to begin to work with the new Palestinian government and remove the sanctions, or whether it simply falls too far short of their demands and therefore obliges them to persist in their pressure. The indications are that a split will develop over this question between the United States and Israel, on one side, and the European Union and Russia, on the other. The former will probably maintain a more rigid position while the Europeans will claim - and this is already the declared position of Russia - that the Mecca agreement constitutes the beginning of a process of moderation in Hamas's posture that should be encouraged by working with the new government and easing the sanctions. The agreement itself is fragile. A unity government has not yet been formed and the path to its formation is filled with obstacles, such as arguments over the appointments to central ministries, especially Interior. What will happen, for example, if none of Hamas's nominees is acceptable to Abu Mazen? Implementing changes in the PLO is also likely to encounter many difficulties due to the unwillingness of current members to give up positions of power and hand Hamas a springboard from which it could take over the PLO, as well. Moreover, the situation on the ground is highly inflammable, and uncontrolled developments could well undermine the entire agreement. Finally, even if the agreement is implemented, the new government may not function because of internal divisions among its constituent elements; if it subsequently falls apart, any understanding about future elections would be put to a severe test. Despite these difficulties, however, the agreement does provide a chance for a change in the destructive dynamics of Palestinian politics over the past year and it might open more space for diplomatic movement. The agreement's viability also depends on the behavior of outside actors. If there is a unified international front in support of continuing sanctions, then the partners to the unity government are likely to become even more skeptical about the utility of the concessions they have made. The major Arab actors, especially Saudi Arabia, have already decided to breach the wall of sanctions, and Russia and some European countries may well join them. It is also not clear whether the two main outside actors - Israel and the United States - will view the agreement as a chance to promote diplomatic movement. At this stage, it seems that both tend to view it in a negative light and will refrain from engaging with the new Palestinian government. In any event, the creation of national unity government will provide an opportunity for all parties involved to reassess current policy vis- -vis the Palestinians and a possible revival of the political process. The author is a senior research associate at INSS.