Palestinian Authority President Mahmoud Abbas has appointed Ismail Haniyeh of the militant Islamic group Hamas to be the next prime minister.
After Tuesday's official announcement, Mr. Haniyeh said he would work towards forming a broad-based, national unity government, a task he has five weeks to complete.
Mr. Haniyeh must also find a way to pay more than 100,000 Palestinian civil servants next month, after Israel froze the transfer of customs revenues it collects for the Palestinian Authority.
Western powers also have threatened to cut aid unless Hamas renounces violence and recognizes Israel's right to exist, something Hamas has so far refused to do.
Iran is urging Muslim nations to make up the funding shortfall. Hamas political leader Khaled Mashaal said Tuesday in Tehran that Iran will play a greater role in Palestinian affairs.
Israel has said it will not have contact with a Hamas-led government, but Israel's interim prime minister, Ehud Ohlmert, said today though chances are slim, there is still hope for reaching peace.
Some information for this report was provided by AFP, AP and Reuters.