Rival Palestinian factions Fatah and Hamas have agreed to hold elections in May, with a caretaker government running things in the interim, the Israeli daily Haaretz reports. The move would end years of power-struggle between the secular Fatah movement, which now controls the West Bank, and the Islamist Hamas, which governs Gaza.

In one of the biggest breakthroughs, Fatah acceded to Hamas' demand for the dismissal of pro-Western Prime Minister Salaam Fayyad.

Palestinian sources reportedly hammered out the deal during secret talks in Cairo. Palestinian President Mahmoud Abbas of Fatah and Hamas political leader Khaled Meshaal are expected to finalize the deal at a planned meeting later this month.

The move is believed to be part of Fatah's renewed effort to win support for a Palestinian bid for statehood at the United Nations Security Council. A highly-touted ploy in September fell short of the necessary votes due to the divide nature of Palestinian governance. If the new coalition government were to gain U.N. recognition of a Palestinian state, it would effectively empower Hamas as an internationally-recognized entity around the world.

Fayyad, who will likely be replaced by a compromise candidate nominated by Fatah, yielded to calls for his removal but argued he was not the problem between the factions. "I have always called for ending the split," he said. "I call upon the factions to find a new prime minister and stop claiming that I'm the obstacle, because I was never an obstacle and will never be."

Although extensive obstacles remain to implementing the unity plan, the coalition government is likely to run into major funding issues. "Dismissing Fayyad would be a huge gamble," the Associated Press reports. The U.S.-educated economist is widely respected in the West and is considered key to ensuring the flow of hundreds of millions of dollars of international aid." Both Israel and the United States will also shun any government including Hamas, as both brand it a terrorist organization which has not renounced violence or embraced negotiations.