Ramallah, West Bank ? The Western-backed Palestinian prime minister submitted his resignation Saturday, improving the odds of a possible unity government of Fatah moderates and Hamas militants, followed by new Palestinian elections.

Salam Fayyad announced that he will step down once a new government is formed, but no later than the end of March. Unity talks between the Islamic militant Hamas and the Fatah movement of moderate Palestinian President Mahmoud Abbas are to resume this week in Cairo. Abbas aides noted that if the negotiations fail, Abbas might reappoint Fayyad.

Fayyad, a respected economist, was appointed prime minister by Abbas in June 2007, following Hamas’ violent takeover of Gaza. The takeover led to a deep split between Fayyad’s internationally backed administration in the West Bank and the widely shunned Hamas government in Gaza whose borders were sealed by Israel and Egypt.

Still, both sides appeared optimistic Saturday about a power-sharing deal.

“Everyone needs a lifeline,” Ahmed Yousef, a Hamas official, said of the rivals. Previous unity accords collapsed in acrimony, but both sides seem to have stronger reasons now to compromise.

After Israel’s recent military offensive in Gaza, Hamas needs Fatah’s international respectability to help end the crippling border blockade and obtain foreign funding to rebuild Gaza. Last week, dozens of donor countries promised $5.2 billion for Gaza reconstruction and the Fayyad government at a pledging conference in Egypt.

Abbas, meanwhile, needs to find a way to blunt political challenges by Hamas, which maintains his four-year term expired in January. Abbas’ support at home has eroded steadily, both because of his perceived lack of decisiveness during the Gaza war and because his yearlong peace talks with Israel produced no results. Abbas is the leading Palestinian proponent of a peace deal with Israel, but with a right-wing government poised to take power in Israel, chances for new talks are slim.

Fayyad said Saturday he was resigning to “support the efforts being exerted to form a national consensus government that would reunite the homeland.”

Hamas has repeatedly demanded that Fayyad step down and officials of the militant Islamic group reacted dismissively.