Palestinian leader Yasser Arafat is looking to build a new administration following the resignation of the entire cabinet.

Our aim was to topple the government and the government now is toppled

Palestinian legislator

The team of ministers quit en masse on Wednesday after Palestinian deputies threatened to reject the line-up in the first such challenge to Mr Arafat.

The move is being seen as a severe blow to Mr Arafat - Palestinian lawmakers and Israel have spoken of a possible new era in Palestinian politics.

Most Palestine Legislative Council deputies believed that many ministers were either incompetent or corrupt.

New era

The Palestinian parliament met at Mr Arafat's headquarters in Ramallah, still surrounded by the Israeli Army.

The resignations were seen by analysts as a way of preventing embarrassment for Mr Arafat.

The Palestinian leader must now present a new cabinet to parliament within two weeks.

The BBC's Peter Biles says that the Palestinian leadership wants to portray the parliamentary rebuff to Yasser Arafat as evidence of a new era of democracy for the Palestinians. But Palestinian critics and Israel say the resignation is a severe blow to Mr Arafat.

Israel sees the resignation as a blow to Arafat

"There is a crisis of trust," said lawmaker Salah Taameri, a long-time supporter of Mr Arafat.

One legislator said: "Our aim was to topple the government, and the government now is toppled."

One of his colleagues, Abbas Zaki, called it the beginning of "a new era of... respect for transparency, accountability and separation of power".

"Palestinians used to say 'Yes, Yes, Yes' [to the executive branch]. Today [Wednesday] they said 'No'," said another, Salam Fayyad.

In Israel, Defence Minister Binyamin Ben-Eliezer, said this could be "the beginning of some kind of change".

"Until now, we had been accustomed to a reality in which without Arafat, nothing could happen," Mr Ben-Eliezer said.

Election plans

Earlier on Wednesday, Mr Arafat set parliamentary and presidential elections for 20 January next year.

The announcement virtually turned his administration into a transitional government that officials argued made any vote of confidence void.

First parliamentary challenge of its kind to Arafat

However, lawmakers insisted that even a temporary government would have to accept the results of a ballot, and ministers felt they had to resign rather than face the public humiliation of a defeat.

Palestinians last held elections in 1996.

Our correspondent says it is hard to see how there can be open democratic elections in just four months, given the military restrictions still imposed on Palestinians.

But he says the announcement of a date for the election could be used to try to push Israel to allow more freedom in Palestinian areas leading up to the vote.

US President George W Bush has urged the Palestinian people to drop Mr Arafat and bring in new leaders uncompromised by "terrorism".