Palestinian President Mahmoud Abbas has officially asked Hamas to form a new government after the militant group won a surprise victory in legislative elections last month. It is likely to be a daunting task amid drastic cuts in incoming funds and uncertainty over how the international community will deal with a government headed by a fundamentalist Islamic group, that is also viewed by some, including the United States, as a terrorist organization.
Behind the scenes political talks were already under way even before President Abbas tasked Hamas leader Ismail Haniyeh with forming a new government.
Haniyeh has just a month to do it. At the same time, he also faces the immediate task of paying more than 100,000 Palestinian civil servants next month, after Israel announced it was freezing the handover of monthly tax and customs revenues.
Hamas has said it would seek alternative funding from Arab and Muslim countries after western donors threatened to also cut off funds unless Hamas renounces violence and recognizes Israel's right to exist - demands that Hamas has thus far refused.
Arab League foreign ministers meeting in Algeria failed to come up with a unified commitment to fill the funding gap and put off a final decision until next month's summit in Khartoum, Sudan.
Meanwhile, Secretary of State Condoleeza Rice is in the Middle East to urge Arab allies to send a clear message to Hamas that it must meet international demands.
"We have encouraged and will continue to encourage, both publicly and private, individual countries to consider what kind of assistance they might provide in light of Hamas' decisions," said State Department spokesman Sean McCormack.
Washington has said it would try to continue funding humanitarian assistance, but has also asked the Palestinian Authority to return nearly $50 million in unspent aid money.
In an opinion piece in Monday's Washington Post newspaper, former President Jimmy Carter appealed to the U.S. government and Israel to play a positive role and not punish the Palestinian people by halting badly needed assistance.
President Carter led a team of international monitors to observe last month's elections.
At the time, Mr. Carter told reporters in Jerusalem he hoped donors would find creative and alternative ways to funnel aid. "The ultimate concern that I have is the Palestinian people themselves, no matter who their government leaders might be. And, they are the ones that will suffer if the aid does not come forward, if the schoolteachers are not paid, if the policemen are not paid. I think chaos is going to result," he said.
Palestinian leaders have also warned of serious consequences and potential violence if the financial situation worsens.
Israeli and some western officials believe now is the time to pressure Hamas to change its policy. Others say too much pressure could prove counterproductive and drive Hamas to seek assistance from place like Iran and Syria.
President Carter says Hamas should be given a chance to prove that it will do as it says, namely form a peaceful unity government.
Syrian political analyst Marwan Kabalan of Damascus University's Strategic Studies Center also says Hamas and other such fundamentalist Islamic groups should be given a chance. "The only way to pragmatize the Islamist forces in the region is to put them in power, let them face the realities of ruling and governing, allow them to get out from underground and participate in the political process and I believe that gradually they will try to pragmatize their positions, according to the realities of their own country and to the realities of international relations," he said.
Kabalan believes Hamas will gradually moderate its stance. One thing is certain, the international community will be watching closely.