The deadlock between Yasser Arafat and Prime Minister Ahmed Qureia is also holding up renewal of high-level contacts with Israel, and it might derail a conference of international donors who have been supporting the cash-strapped Palestinian Authority.
At issue in the dispute is the appointment of an interior minister who would consolidate the security forces — some of which are under the command of Arafat — and play a key role in possible action against violent groups.
Arafat has blocked Qureia's choice for the job, Gen. Nasser Yousef, in part because he does not want to relinquish control over the security services. Qureia's successor, Mahmoud Abbas, was pushed out by Arafat over the same issue.
Arafat and Qureia met Thursday, along with leaders of the ruling Fatah movement, but failed to resolve the dispute. Another session of the Fatah Central Committee was set for later Thursday.
Sakher Habash, a Central Committee member, said Arafat was adamant about not appointing Yousef as interior minister.
Habash said committee members raised different ideas for shifting control of the security forces. One proposal is to have the heads of the main branches, now controlled by Arafat, participate in Cabinet meetings, which the veteran leader does not attend.
The United States has been pushing for consolidation of the security forces under control of the prime minister as a precursor for action against militants. However, Qureia has said he prefers a negotiated end to violence, not a crackdown.
Officials close to Finance Minister Salam Fayad said his boycott announcement was meant to pressure Arafat to stop holding up the formation of the new Cabinet.
Fayad also told associates he would serve in a Cabinet only if it is headed by Qureia. Foreign Minister Nabil Shaath is seen as a possible candidate for prime minister, if Qureia were to step aside because of his difficulties with Arafat.
Fayad, who has close ties with Bush administration officials, framed his decision to stay home in legal terms, saying the one-month term of Qureia's emergency government expired Tuesday, and that an extension granted by Arafat was illegal.
"This emergency government cannot be a caretaker government," Fayad told The Associated Press. "Thus I think there is no legitimacy to this government, and we have to respect the law."
Fayad's boycott could scuttle an international donor conference in mid-November, a setback for the Palestinian Authority, which relies heavily on foreign support. At the donor meeting, Fayad, a former International Monetary Fund official, was to have presented the Palestinian budget for 2004 and make a pitch for additional money.
A diplomat said the meeting might not take place if a new Cabinet is not installed. The diplomat spoke on condition of anonymity.
In other developments, a Palestinian woman who lured an Israeli teenager to his death through Internet flirtation was jailed for life by an Israeli military court.
Freelance journalist Amne Muna exploited 16-year-old Ophir Rakhum's "yearning for love" to forge an emotional bond with him through their Internet chats, which she used to tempt him to a meeting, the ruling said.
According to the charge sheet, Muna — 24 years old at the time of the January 2001 killing — picked Rakhum up in a car in Jerusalem and drove him a short distance into the West Bank, where two accomplices were waiting. They ordered Rakhum out of the car, and when he refused, they shot him to death, the indictment said.
Israeli Prime Minister Ariel Sharon, meanwhile, lobbied for Cabinet support for a planned prisoner swap with the Lebanese guerrilla group Hezbollah.
Sharon's office said the prime minister would present the controversial deal to his divided Cabinet for approval on Sunday. Under the arrangement, Israel is expected to hand over more than 400 Lebanese and Palestinian prisoners in exchange for an Israeli businessman, Elhanan Tannenbaum, and the bodies of three soldiers.
Many Israelis oppose the deal because of the large number of prisoners Israel would release and the apparent absence of new information about Ron Arad, an Israeli air force navigator captured in Lebanon in 1986.
Sharon met Thursday with the families of Tannenbaum and the dead soldiers.
Also Thursday, in the West Bank city of Nablus, a 38-year-old woman was killed during a gunbattle between Israeli soldiers and gunmen. The woman was standing on the balcony of her home when she was hit by a bullet, doctors said.