Palestinian Authority President and Fatah leader Mahmoud Abbas has sworn in a new cabinet in the West Bank.
Salam Fayyad, who is popular with the West, was retained as prime minister but had to relinquish his influential second post as finance minister.
Correspondents say the move is a blow to reconciliation efforts with Hamas, the Islamist group which governs Gaza.
There had been plans for a unity government to end almost five years of division between the rival factions.
A Hamas spokesman said naming a new cabinet was a "big error".
The BBC's Jon Donnison in Ramallah says it is more than a year since Fatah and Hamas agreed a reconciliation deal in Cairo in an effort to end years of bitter infighting, but it has come to nothing.
The factions could not agree on who to appoint to a new transitional unity government formed of independents, which was to prepare for legislative elections scheduled to be held before the end of this month.
The new 25-member cabinet includes 11 new ministers, whose portfolios include finance, national economy, Jerusalem affairs, health and justice.
The new finance minister is Nabil Kassis, a former university president and independent. He will have to cope with a projected $500m gap in the Palestinian Authority's $1.3bn budget, most of which comes from the European Union, United States and Arab countries.
Mr Abbas, who heads Fatah, said he had not given up on reconciliation.
"If we have an agreement with Hamas tomorrow or afterwards, this government will not have any role," he told reporters in Ramallah.
"But I cannot wait forever. A number of ministers have resigned from the current government, and the administrative situation has paralysed it, which forced me to announce this [new] government."
Our correspondent says the move to appoint a new cabinet only in the West Bank suggests for now that Mr Abbas is shelving the unity deal.
A Hamas spokesman criticised the president's unilateral move.
"This policy will not benefit the Palestinian people, because this government is not the choice of the Palestinian people and it does not have the support of the Palestinian Legislative Council [parliament]," Fawzi Barhoum told the BBC.
The reshuffle "skips over the Doha Declaration [signed by Mr Abbas and Hamas political leader Khaled Meshaal in February 2012] and overrides the Cairo Agreement, both of which stipulated that a unity government headed by Mahmoud Abbas should be formed immediately", Mr Barhoum added.
Palestinians, many of whom are increasingly disillusioned with their political leaders, have been crying out for unity for years, but it remains elusive, our correspondent adds.