Israeli Prime Minister-designate Ehud Olmert finished cementing a government Monday, bringing together a mix of parties with a center-left bent and a willingness to make territorial concessions in hopes of minimizing - if not settling - the century-old Arab-Jewish conflict.
But even as Mr. Olmert's cabinet takes shape, pointing toward a more liberal leadership than Israel has had since before the start of the intifada in 2000, many observers say they are unsure whether Olmert will pave the way toward a new era of peacemaking or open a new chapter in unilateralism.
Olmert says that he intends to draw Israel's final borders by 2010 and pull out from parts of the West Bank as well.
"Olmert has a majority for his ideas, and now he has to clarify what the ideas are, and I'm not so sure he even knows what he wants to do," says Reuven Pedhatzur, a political scientist professor at Tel Aviv University. "The idea is to continue the disengagement, but what that means is unclear. He believes we cannot maintain this situation anymore, but I don't think he has a complete plan, or a complete map of how to change it."
In this, one of the most sensitive periods of time on the local calendar - Israelis celebrate Independence Day on Wednesday while Palestinians mark it solemnly as "Al Nakba," the Catastrophe - the greater state of affairs has looked deeply unpromising.
Israel, the US, and many Western countries have frozen diplomatic and economic ties with the Palestinian Authority (PA) after January's victory of Hamas, which refuses to recognize Israel or make a comprehensive shift from militancy to policymaking. But some Palestinians, particularly those who are still avid proponents of a two-state solution, say Olmert's government presents reasons for optimism.
"The change in Israel is important and relevant," says Ghassan Khatib, a former Palestinian government minister and a lecturer of cultural affairs at Bir Zeit University in the West Bank, near Ramallah. "My understanding is that this new prime minister is very different from Ariel Sharon and this government is different from Sharon's government, and because of that, I am hoping for a change."
What is perhaps most important, vis-à-vis the chances of retuning to any Israeli-Palestinian dialogue, is the makeup of Olmert's government. It leaves a growing right-wing party - Israel Beitanu (Israel is Our Home) - out of the coalition.
"The composition of the government is a major indicator," says Mr. Khatib. "In looking at this government-in-the-making, I feel it represents a move toward a positive direction, as far as the peace process is concerned. My only concern is that they may take the easy track, toward unilateralism, and for that you need to keep Hamas in power."
Indeed, many of the open-ended questions that Israel's new government raises may ultimately be answered only in concert with Hamas. For instance, will Hamas decide to engage with Israel, and will Israel decide to engage with Hamas.
One possibility that has been raised is the option of Olmert negotiating directly with Palestinian President Mahmoud Abbas, who under the PA retains responsibility for all external relations.
But whether Hamas would respect major decisions made by Mr. Abbas, with whom they have already wrangled regularly in their short tenure in office, remains unclear.
In Israel, commentators viewed the coalition as one of the most potentially progressive Israel has had in several years - albeit one with an uncertain mandate.
Key cabinet appointments include Tzipi Livni as vice premier and foreign minister. Ms. Livni is a rising star in Israeli politics and a protege of former Prime Minister Sharon. She followed Sharon to the centrist Kadima Party after he bolted the hard-line Likud Party. She held several portfolios in Sharon's government, including the foreign ministry, justice, agriculture, housing, regional development, and immigrant absorption. Monday's appointment makes her the No. 2 player in male-dominated Israeli politics.
Amir Peretz, head of the Labor Party, was appointed to head defense. He is widely perceived to be strong on social issues but inexperienced in military matters, making his new posting controversial. Mr. Peretz's family immigrated to Israel from Morocco in 1956 and settled in working-class Sderot on the edge of the Gaza Strip. He became an army captain and was elected to Israel's parliament in 1988. In 1995, he became head of the Histadrut Labor Federation. Peretz often speaks of growing up in poverty and rants against Israel's free-market policies. He wrested leadership of Labor from elder statesman Shimon Peres in November.
Avraham Hirchson, a member of Kadima, was appointed to the finance ministry. He is expected to keep Israel on the free-market path, perhaps with some modifications to redress the widening poverty in Israeli society.
Mr. Peres is the deputy prime minister-designate. He's a former prime minister and Nobel Peace Prize winner who followed Sharon to Kadima after Peretz ousted him as Labor leader.
• Wire service material was used in this article.