The long-awaited "road map" holds out the prospect of ending 31 months of Israeli-Palestinian fighting and establishing a Palestinian state in stages. It also would respond to pressure on the United States, by Arab and European countries, to promote Mideast peace at a time when its troops occupy Iraq.
President Bush had said he would unveil the plan only after the formal establishment of Abbas' government — which U.S. and Israeli officials hope will amount to a means of sidelining Arafat. The United States and Israel have boycotted Arafat, accusing him of links to terrorism.
It appears that Arafat bowed to international pressure, reports CBS News Correspondent Robert Berger.
The Palestinian leader withdrew his challenge to Abbas' security team in exchange for a promise that he would be consulted on major decisions — including, presumably, a crackdown on militias.
Israeli Cabinet minister and Deputy Prime Minister Ehud Olmert responded cautiously.
"One should judge the deeds and not the declarations," he said in a televised interview. "We have to wait and see if the new Cabinet will, in fact, be sworn in and how it will act, taking into account Arafat's staunch resistance to it and his capacity to undermine any process of reform."
The days-long wrangling was a sign of Arafat's continued resistance to sharing power, after four decades as the unchallenged Palestinian leader. The crisis also suggested Arafat will try in the future to limit Abbas' authority, while the new premier can count on international backing in such confrontations.
The nature of the new Palestinian government — and the road map's chances of ultimate success — remained somewhat unclear.
Under the emerging arrangement, Abbas — who has called the violent uprising against Israel a mistake — would control the important preventive security force and day-to-day government. That means he would both be able to carry out a crackdown on militants and ensure official funds do not reach them.
But Arafat retains control over other security bodies — and, critically, appears to retain the final say in any peace talks with Israel, if they restart.
Emerging from Arafat's office, Abbas played down the extent of his falling-out with the Palestinian leader, even though earlier, he had been quoted as saying the relationship was beyond repair. "This wasn't a crisis," he said. "There were obstacles, and they have been removed."
Abbas has not yet released his Cabinet list, which requires the approval of the 88-member Palestinian legislature. Parliament Speaker Ahmed Qureia said he would convene legislators within a week, possibly on Sunday or Monday.
After that, the United States is expected to unveil the road map, which was worked out late last year together with the European Union, Russia and the United Nations.
It calls for an end to Palestinian attacks and a freeze on any expansion of Jewish settlement-building in the West Bank and Gaza, followed, perhaps as early as this year, by a Palestinian state with provisional borders. Final borders, the status of Jerusalem and the fate of Palestinian refugees are to be decided in later stages.
Secretary of State Colin Powell said Mr. Bush is prepared to apply pressure on Israel and the Palestinians to implement the plan. "He (Bush) knows with more certainty than he did before that this is where we have to turn our attention to," Powell said Tuesday in a CBS interview.
The United States, which has been trying to sideline Arafat, has backed Abbas in the current dispute. "He (Arafat) ... is still not showing the kind of leadership that we need in a Palestinian leader," Powell said.
Abbas and Arafat ended their differences just seven hours before a midnight Wednesday deadline, after a daylong shuttle mission by Egyptian intelligence chief Omar Suleiman and phone calls from Arab and European leaders to Arafat.
With his penchant for theatrical gestures, Arafat announced the agreement while holding hands with Abbas and Suleiman, who flanked him at the Cabinet table in Arafat's headquarters in the West Bank town of Ramallah.
By law, Abbas has the sole authority to choose his ministers, but in this case required Arafat's blessing. The ruling Fatah party sided with Arafat in the dispute, and Fatah controls a solid majority in parliament.
Fatah had supported Abbas, also known as Abu Mazen, for the new post of prime minister, but he lost some support in the party when he appointed to the Cabinet a number of politicians tainted by corruption, and failed to bring in new faces.
One of the appointments Arafat tried to block was that of former Gaza strongman Mohammed Dahlan to a key security post. Arafat demanded to keep on one of his loyalists, Hani al-Hassan, as interior minister in charge of security.
Abbas insisted on firing al-Hassan, who has made no headway in reining in militant groups, and instead named himself interior minister. Dahlan, who has the backing of the United States and Europe because of his willingness to confront the militias, was appointed state minister for security affairs.
Commenting on the emerging Cabinet, Hamas spokesman Abdel Aziz Rantisi suggested Wednesday that Dahlan was a traitor, saying: "You have to be on the side of your people, not the side of your enemy." Rantisi said Hamas, which has killed hundreds of Israelis in shootings and bombings, would not halt attacks.
Palestinian and Egyptian officials, speaking on condition of anonymity, said that in exchange for backing down, Arafat was given guarantees regarding his personal safety and was told Egypt would ask Israel to lift a travel ban on him in effect since December 2001. Several Israeli Cabinet ministers have called for Arafat's expulsion from the West Bank, a move blocked by Washington.
Palestinian Planning Minister Nabil Shaath said he has been informed he would serve as foreign minister — a role he has filled de facto in recent years with his frequent meetings with foreign leaders.