Will Arafat Step Aside?

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The Bush administration might have suffered a setback at the U.N. last week, when talks deadlocked over ousting Saddam, but it got a boost for another sought-after regime change in the Middle East. Palestinian leader Yasser Arafat announced last week that he will begin to ease his grip on power by appointing a Prime Minister. Why did Arafat suddenly accede to a demand that the Israelis--who say they can no longer work with Arafat--and the U.S. have been making for months? It may be the looming war with Iraq. U.S. and Palestinian officials tell TIME that Arafat fears Israel's hawkish Prime Minister, Ariel Sharon, will exile or kill him while the world's attention is focused on the war. "There's a Palestinian concern that if the balloon goes up over Iraq, Sharon will use that as cover to come in and get rid of Arafat," says a senior U.S. official.

The U.S. doesn't think that's a danger, and many Israelis believe Sharon would not move against Arafat, since it would deprive the Israeli leader of an excuse not to pursue peace talks. There's much skepticism, however, that Arafat's announcement means he is ready to cede power. For one thing, Arafat didn't say when he'll make the move or precisely what powers the Prime Minister will have. But U.S. officials are intrigued by one candidate whose name has been floated for the new post: reformist Finance Minister Salam Fayyad, who has tackled Palestinian Authority corruption. Israeli officials are less optimistic. They regard Arafat's announcement as a ruse, and tell TIME that another name on the short list is Nabil Shaath, who is closely tied to Arafat. Both the U.S. and the Israelis will be happy enough if regional tensions keep the pressure on Arafat to reform. --By Massimo Calabresi and Matt Rees