Gregoire, the loser by increasingly slim margins in the first two counts, could claim an even wider margin of victory thanks to a state Supreme Court decision Wednesday that requires more than 700 belatedly discovered King County ballots to be counted.
King County, a Democratic stronghold and the last county to finish counting ballots, is expected to certify its results Thursday, but it appeared the courts ultimately will have to decide who won.
Republicans vowed to seek out Rossi voters whose ballots were disqualified and said they will fight to have those votes counted.
"This battle is not over," State GOP Chairman Chris Vance said. "This election is not over."
Gregoire, 57, a three-term attorney general, was the favorite going into the election against Rossi, 45, a real estate agent and former state senator.
But out of 2.9 million ballots cast on Election Day, Rossi won by 261 votes over Gregoire. His lead was whittled to 42 votes in a subsequent machine recount. Democrats paid $730,000 for the hand recount, though by law the state has to repay the party if the recount reverses the results.
The head of the Washington state Democratic Party said that recount results from King County give Gregoire a victory in the closest governor's race in state history.
That assessment from Democratic Party chairman Paul Berendt came before the state Supreme Court's decision Wednesday to add to its recount 723 ballots that weren't counted originally because of mistakes made by county election workers.
Up to now, the 723 King County ballots had not been included in the hand recount, because a lower-court judge granted a Republican request to temporarily block the counting of those votes.
Wednesday's ruling was the latest twist in the roller-coaster race, which was supposed to have been settled seven weeks ago, on Election Day.
Neither King County nor the Republican party could confirm the hand recount results referred to by Berendt on Tuesday. But if the Democrats' analysis is correct, it's a stunning reversal in the gubernatorial race, which has been hotly contested ever since election day.
Republican Dino Rossi won the first count by 261 votes and won a machine recount by 42 votes, out of 2.9 million ballots cast. The hand recount did not include the 700-plus ballots cast in heavily Democratic King County that could widen any Gregoire lead if the state Supreme Court allows them to be counted.
"We're confident Christine Gregoire has been elected the governor of the state of Washington," Democratic Chairman Paul Berendt said late Tuesday. "I believe Dino Rossi should concede."
Berendt and Democratic party officials reached their conclusion after crunching numbers supplied by King County, which includes Seattle and its suburbs. The county has finished tallying its 900,000 ballots, but election officials said they still need to reconcile differences in the precinct totals.
Rossi spokeswoman Mary Lane said Republicans are also looking at the data but had not drawn any conclusions. "It's just too close to call," she said.
The Rossi camp has said that if it lost the third count it might challenge the election in court, and Republicans are already preparing for a possible legal challenge. Gregoire had promised to concede if she lost the recount.
Berendt's contention that the race had been decided came one day before the state Supreme Court is to hear arguments on whether King County - which is solidly Democratic - should be allowed to add to its recount 723 ballots that weren't counted originally because of mistakes made by county election workers.
A Pierce County judge on Friday granted the state Republican Party's motion for a temporary restraining order to stop King County from counting those newly discovered ballots, which were not included in the hand recount. However, the case may be moot if it proves true that Gregoire holds a lead - and that lead stands.
Seven justices will hear the case, which was brought before the court by King County, the state Democratic Party and the Secretary of State. Three of the regular nine justices are out of town on previously scheduled trips, and one temporary judge will join the court.
About 350 people gathered Tuesday in front of the Supreme Court to show support for Rossi at a rally sponsored by KVI-AM, a conservative talk-radio station.
The crowd chanted "No new votes!" and "No more fraud!" They held signs saying "Welcome to Ukraine" and wore orange, a tribute to the signature color ofwho protested a fraud-marred election there.
Washington state leans Democratic and has not elected a Republican governor since 1980. Presidential candidate John Kerry won the state with 53 percent of the vote; the current governor, Locke, easily defeated Republican opponents to serve two terms; and Democrats control the Legislature.
Gregoire, 57, looked like the Democrats' Wonder Woman. Polished and popular, Gregoire won national recognition as lead negotiator of the 1997 tobacco settlement, in which major tobacco companies agreed to pay $206 billion to 46 states. But after a bruising primary, her campaign struggled to find a message that connected with voters.
Rossi, on the other hand, wasn't the GOP's first choice by a long shot. Republicans tried to recruit three other prospects. They wanted someone with a higher profile than the 45-year-old who lacked name recognition outside his Senate district. The commercial real estate agent surprised the party faithful, though. He ran a slick, strong campaign identifying him as a compassionate conservative. And his promise of a fresh start in state government caught on with voters.