There are strong indications that the Islamic militant group Hamas has won a stunning victory in Wednesday’s Palestinian parliamentary elections.
Final results are to be announced at about 1900 local time (1700GMT).
But Prime Minister Ahmed Qurei has already announced his resignation, as the ruling Fatah party conceded defeat.
A Hamas victory will pose a great dilemma for the international community as it tries to restart peace talks with Israel, correspondents say.
Israel has said it will not deal with a Palestinian Authority which includes Hamas.
US Secretary of State Condoleezza Rice said the US policy on Hamas was unchanged, and the movement would have to renounce violence.
“You cannot have one foot in politics and the other in terror,” she said.
European officials echoed the call.
“The onus is now on Hamas to choose between democracy or violence. You cannot have both,” UK Foreign Secretary Jack Straw told the BBC.
Hamas claimed it had won at least 70 seats in the 132-member parliament, while EU election observer Richard Howitt told the BBC he had been informed that Hamas could have won up to 80 seats.
Observers praised the election process, with EU monitoring team leader Veronique De Keyser saying the poll was “free and fair under severe restrictions”, referring to Israeli measures to limit voting in East Jerusalem.
The BBC’s Jon Leyne in Jerusalem says there is no doubt that the Hamas showing has transformed the Palestinian political arena.
For decades, Fatah – the party founded by the late Yasser Arafat – has totally dominated electoral politics, but that time is over, he says.
The likelihood of a resounding victory for Hamas – which is committed to the destruction of Israel – sent shockwaves though the Jewish state.
Speaking on election night, acting Israeli Prime Minister Ehud Olmert said Israel could not deal with a Palestinian Authority which included Hamas.
Hamas official Mushir al-Masri warned that Hamas would not hold peace talks with Israel.
“Negotiations with Israel is not on our agenda,” he said.
“Recognising Israel is not on the agenda either now.”
The outcome of the Palestinian election is the biggest challenge facing Mr Olmert since he took over from Israeli Prime Minister Ariel Sharon, who remains in a coma following a massive stroke on 4 January.