Palestinian leader Yasser Arafat has signed a bill creating the position of prime minister - hours after it was passed by the Palestinian parliament.
Abbas is close to Yasser Arafat
Earlier on Tuesday, the parliament rebuffed Mr Arafat's demands to dilute the authority of the new post, in particular to retain the power in appointing cabinet ministers.
The installation of a new prime minister was a condition set by the United States for movement on an internationally-backed peace plan aimed at ending more than two years of killing that have left thousands of Palestinians and Israelis dead.
US Secretary of State Colin Powell hailed the move as "a positive step", but said Washington "would have preferred to see even greater authority vested in a prime minister".
Arafat decided to give up his demand to participate
in the forming of the government
Palestinian legislator Abu Naja
Meanwhile, in the latest violence on Tuesday, two senior members of the militant group Hamas were killed in two separate raids in the West Bank, the Israeli army said.
The army said the men - identified as Nasser Assideh and Ali Alan - were linked to suicide bombings and other attacks in Israel. It said one Israeli soldier was killed during the operations.
Earlier, the United Nations Secretary General, Kofi Annan, criticised Israel for failing to protect civilians during military operations in the Gaza Strip.
His spokesman said Mr Annan was especially troubled that Israel appeared to be flouting international humanitarian law, by not taking all possible measures to protect the civilian population.
Mr Arafat is now expected to formally ask his long-time deputy Mahmoud Abbas, whom he nominated for the job earlier this month, to become prime minister.
Mr Abbas - also known as Abu Mazen - is expected to establish a cabinet within two weeks.
The bill defining the role of the prime minister was approved with 69 votes and one abstention in the 88-member
The prime minister's new powers were defined in a landmark session of parliament last week.
But on Monday, the parliament rejected amendments proposed by Mr Arafat to the bill that would have given him a firmer grip on the cabinet.
NEW PALESTINIAN POWER-SHARING ARRANGEMENT
Mr Arafat controls security and foreign policy - including peace talks
Mr Arafat has right to appoint and dismiss premier
Prime minister will be in charge of internal affairs and forming a government
The new prime minister will take over day-to-day running of the Palestinian Authority.
Mr Arafat is to be left in command of security forces and have the final say on peace talks with Israel.
President George W Bush said last week the US would unveil the long-delayed road map for peace as soon as the Palestinian Authority appointed a prime minister "with real authority".
But Mr Arafat's retention of overarching control of security services and peacemaking could meet US opposition, observers say.