Mr Haniya forecast agreement on a national unity government “within two to three weeks” but refused to speculate on its programme or new leadership. The Islamist Hamas and President Abbas’s secular Fatah faction both hope that his decision will end Israeli and Western sanctions.

They have left 160,000 Palestinian Authority civil servants virtually unpaid since March, amid worsening civil unrest. With Hamas retaining control of the Palestinian parliament — and almost certainly any new coalition government — it remains unclear, however, how it will meet Western demands to recognise Israel, renounce violence and abide by previous agreements.

To cheers from his supporters, Mr Haniya insisted that Hamas would not sacrifice its principles but that he was willing to resign to end his people’s suffering.

“We had this dialogue to form the new government and we reached a stage where several parties came to us and told us that the Americans and Europeans and other forces in the region said that such an agreement is beautiful and we can deal with such a government, but on one condition: that to end the siege there is a need to change the Prime Minister,” he said.

“When I see it that way — that they put the siege on one hand and me being the Prime Minister on the other hand — I say let us end the siege and let us end the suffering of the Palestinian people.

“Taking such a decision is not a compromise: it is a struggle and a sacrifice. There are those who have sacrificed with their blood and souls. Is this chair more precious than that?” Although Hamas denied that it marked a defeat, it was a symbolic moment signifying the Islamist movement’s failure to overcome international isolation that led to growing poverty and violent infighting.

Hamas supporters were in no doubt of Mr Haniya’s intentions. “I am upset that we are going to lose this guy as Prime Minister but I am also happy that things will be easier for the Palestinians,” said Jihad Mohammed, 47.

Hamas has come under increasing pressure in recent months, with the authority’s coffers empty and demonstrations by civil servants.

There have been growing calls for a national unity government amid escalating violence, notably Israel’s shelling of Beit Hanoun that killed 18 civilians. Bassem Naim, the Health Minister, has been tipped as a possible replacement for Mr Haniya.

Fatah supporters also welcomed the move but injected a note of caution. “He hasn’t gone yet,” said Ashraf Shannon, 32. “It is like salaries: you don’t get paid until you have the money in your pocket.”

Israel remains wary. Mark Regev, a Foreign Ministry spokesman, said: “The key to a new government is not its composition but its platform.”

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