RAMALLAH, West Bank - Western-backed technocrat Salam Fayyad will stay on as prime minister of the Palestinian Authority at the head of a new cabinet to be announced shortly, Palestinian officials said on Tuesday.

They said Fayyad, a former World Bank economist, would maintain effective control of security and finance in the new government, the key portfolios in the administration headed by Palestinian President Mahmoud Abbas, although members of Abbas's Fatah faction will replace political independents in some posts.

The swearing in will take place today at 6 p.m. (1500 GMT), said one official, speaking on condition of anonymity.

Members of Fatah will control nearly half of the two dozen cabinet seats in the new line-up, the officials said, meeting the group's demand for a greater say in running the Palestinian territories. They had been excluded from the cabinet since Abbas appointed Fayyad in June 2007 in the wake of civil war in Gaza.

Fayyad was named at the time to lead a caretaker government. In March this year when he tendered his resignation, only to have the request turned down by Abbas who persuaded him to stay on as interim premier.

Political analyst Basem Zubeidi of Birzeit University said the aim of the reshuffle was to appease sectors within Fatah and give more clout to a government that was paralyzed, with little legitimacy and a lot of resentment and many opponents.

The government administers an annual budget of some $3 billion, about half of it derived from aid grants from the European Union and other foreign donor states.

SEPARATE TERRITORIES

The Palestinian Authority in effect now administers only the Israeli-occupied West Bank, home to 2.5 million Palestinians.

The Gaza Strip, where 1.5 million Palestinians live, is blockaded by Israel. Since June 2007 it has been under the control of the rival Hamas group, an Islamist movement which unlike Fatah opposes making peace with the Jewish state.

The new government goes some way to bolstering the authority of Abbas 10 days before he meets U.S. President Barack Obama.

Abbas had postponed swearing in a new team last week owing to dispute over the line-up -- between Fayyad and Fatah members, within Fatah and between Abbas and members of his own faction.

Hamas, in control of Gaza since they routed Abbas's forces in 2007, consider Fayyad's administration illegal and insist that Abbas's term actually ended months ago.

The cabinet line-up was agreed one day after a fresh round of reconciliation talks between the rival Palestinian factions ended in stalemate in Cairo. The Egyptian-mediated negotiation has been going on for months without showing concrete results.

This is a transitional government, Zubeidi said. I do not think that it has the mandate, nor time, nor ability to put down long-term plans ... it will be transitional until the issue of dialogue is concluded in Cairo.

The message Fatah was sending to Hamas, he said, was that things are not left to Fayyad alone, and that Fatah will not leave the national cause to a person like Fayyad.

The Palestinian internal rift has seriously undermined prospects for resuming stalled peace talks with Israel, which says it can only negotiate with one Palestinian leadership and will not negotiate with Hamas -- unless it drops its commitment to armed resistance and agrees to recognize the Jewish state.

Hamas won a parliamentary election in January 2006, ending a near-monopoly on power by the Palestine Liberation Organization (PLO) and its dominant faction, Fatah. The government Hamas formed was subject to a crippling boycott by Western aid donors, leading to a unity government between Hamas and Fatah in 2007.

That lasted only a few months before the violence in Gaza resulted in a rift between the two Palestinian territories.

(Writing by Douglas Hamilton; editing by Alastair Macdonald and Dominic Evans)

(Editing by Richard Balmforth)

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