The resignation of Palestinian Authority Prime Minister Salam Fayyad on Saturday is a dramatic development. Its ramifications won't just reverberate in the part of the West Bank under Palestinian control, but also affect Israel and the Obama administration's efforts to renew the peace process, as well as the European Union's policy towards the Palestinians.

For Israel's government and defense establishment, the U.S., and the EU, which both regularly provide economic aid to the Palestinian Authority, Fayyad was the go-to man. The former International Monetary Fund economist was educated in the U.S. and was a symbol of good governance and the war on corruption. His plan to build Palestinian state institutions from the bottom up received much international support.

But it was this success that itself bore within it the seeds of his demise. Fayyad, who served as prime minister since 2007, resigned after his relations with PA President Mahmoud Abbas deteriorated, reaching an unprecedented low. The crisis of confidence between the two leaders was sharp and irreparable. Abbas and the Fatah party's old guard that surround him saw Fayyad as a political rival who needed to be eliminated.

Fayyad's resignation is another sign of the PA's internal disintegration and the deep political crisis it is struggling with. In order to survive, Abbas imposed a semi-autocratic regime in the West Bank styled after that of former Egyptian President Hosni Mubarak. Journalists and bloggers are sent to prison, demonstrations and criticism are suppressed with an iron fist and the government doesn't function while the ruler travels the globe.

The PA president looked on with jealously as Fayyad gained popularity not only in Washington and Brussels but also in the West Bank. Senior Fatah party members saw Fayyad as an obstacle toward their political and economic ambitions. The Palestinian prime minister refused to transfer funds to them or to appoint them as ministers.

The financial crisis that struck the PA fell like ripe fruit into the hands of Abbas and the Fatah bigwigs. They decided to direct the public anger over the rising cost of living and high unemployment towards Fayyad and his government.

The conflict between Abbas and Fayyad grew following the latter's objection to Abbas' decision to unilaterally declare Palestinian independence at the United National General Assembly. Fayyad thought it was merely a symbolic step without real benefit and warned of the damage it would cause the PA as a result of Israeli sanctions. Fayyad was right. Israel responded by stopping the transfer of the PA tax revenues deepening the West Bank's economic crisis and almost bringing it to a state of insolvency.

Over the past year Fayyad came very close to resigning several times, but every time he reconsidered, principally due to American and European pressure. The straw that broke the camel's back for Fayyad was the resignation at the beginning of this March of his close confidant Nabil Kassis, the PA's finance minister.

Kassis, who was on the receiving end of the harsh public criticism due to the economic crisis, presented his resignation to Fayyad, who as prime minister accepted it. Abbas, who was on one of his many trips abroad fumed at his acceptance of Kassis's resignation and demanded that Fayyad return Kassis' resignation letter. Fayyad refused, claiming that Abbas was infringing on his authority as prime minister, the very same authority that Abbas himself demanded from then-PA President Yasser Arafat when he was appointed prime minister in 2003.

In recent days, by which time Fayyad's resignation had only become a matter of time, U.S. Secretary of State John Kerry and some of his European colleagues tried to prevent the falling out. Kerry attempted to mediate between Abbas and Fayyad, but his efforts never really stood a chance.

Fayyad's resignation will place a question mark on the prospect of continued international aid to the PA. Without Fayyad guarding the public coffers, it's not certain that the countries currently providing the PA with aid will continue to do so. Israel will also hesitate to promote economic measures in the West Bank with Fayyad away from the steering wheel. The economic crisis in the West Bank will deepen, which means that the road to the next bout of violence is a short one.

Fayyad's resignation is also a harsh blow to the Obama administration, and its plan to promote the peace process. A senior Israeli official pointed out that Fayyad didn't handle negotiations with Israel, so that at a first glance his resignation shouldn't affect the American-led peace efforts. Nevertheless, the official added, Fayyad's departure will frustrate the administration, which relied on him and saw in him a responsible figure.

On Saturday, senior political officials expressed much regret over Fayyad's resignation. However, it was a case of too little, too late. The Netanyahu government's relationship with Fayyad was one of ambivalence. On the one hand, it saw in Fayyad a trustworthy partner on all matters related to economic and security coordination. On the other hand, there were those who saw him as a threat because of the success of his plan to build the infrastructure for a future Palestinian state. Israel is not responsible for Fayyad's resignation; however, the policy of Netanyahu's government certainly didn't help Fayyad's survival on the job.