The last time he tried a high-stakes balancing act with rival Hamas, he famously plunged off the wire. After the militant group won parliamentary elections in 2006 and was promptly boycotted by Israel, the U.S. and Europe, an attempt at a unity government unraveled into open warfare between the rival Palestinian factions.

But in the wake of a May 4 reconciliation deal with the Islamist Hamas, which the U.S. and Israel label as a terrorist organization, he's gambling on a better safety net this time. There are indications that Arab nations and some European ones might be willing to make up the difference if the United States yanks funding for his government and Israel cuts off the transfer of tax revenues that account for two-thirds of his budget.

Still, Abbas, who this week began hammering out the details of his new government, will be severely tested in the days and weeks ahead. As he embarks on what he insists will be his final year in power before retirement, the Palestinian leader has surprised many in recent months by taking some stubborn and unpredictable positions.

Previously criticized for lacking creativity, assertiveness and a backup plan in case U.S.-brokered peace talks faltered, Abbas lately has impressed some as a leader unafraid to make bold moves, jump into unchartered territory and even alienate the U.S. and Israel.

The expected September bid for statehood recognition at the United Nations is gaining more momentum than many Palestinians predicted. Abbas defied U.S. pressure to drop his demand for a halt to new Jewish settlements in return for resuming talks and is brushing aside increasingly urgent pleas from Washington to give up the U.N. statehood plan. Now he's putting international funding and his reputation on the line to partner with Hamas.

Aides and analysts say his recent moves suggest a leader who believes he has nothing to lose and is thinking about his legacy.

"Abbas is undergoing some serious changes," said Hisham Ahmed, a political analyst from Moraga, Calif.-based St. Mary's College who is visiting the West Bank. "We could be heading into a very volatile summer."

To make his latest maneuver work, Palestinian officials and analysts say, Abbas will need to find a way to partner with Hamas while simultaneously distancing himself and the new government from the militant group. And he will try to satisfy international demands to renounce violence and recognize Israel's right to exist, even though the new government, to avoid antagonizing Hamas, may not do so explicitly.

As it was when Abbas tried to broker a unity government four years ago, a hot-button issue will be the conditions set down in 2006 by the Mideast quartet, consisting of the U.S., U.N., European Union and Russia: In exchange for funding and recognition, the new government must formally recognize Israel, renounce violence and abide by past peace agreements.

Abbas' government in the West Bank accepted the conditions and got its funding restored after the 2007 split. Hamas continues to balk at the conditions, and as a result, the Gaza Strip, which the militant group has ruled since, has endured stiff economic sanctions.

Some in Congress are already moving to try to halt about $500 million in U.S. support for Palestinians unless the new government, including Hamas, accepts the conditions.

European governments, by contrast, appear ready to compromise, hoping the reconciliation will bolster the peace process. When Israel temporarily withheld the transfer of about $89 million in Palestinian tax collections last week, the European Union and France pledged about $80 million to help the Palestinian Authority cope with the shortfall.

"Europe is pushing back this time," said Daniel Levy, director of the Middle East Task Force at the New America Foundation in Washington. "They look at the glass as half full, or more like three-fourths or seven-eighths full. They want to continue the funding relationship."

Under pressure from Europe and the U.S., Israel agreed Monday to release the monthly tax receipts, but it is threatening to withhold future payments — worth about $1.2 billion a year — if the new government cannot prove that the funds won't go to Hamas.

If Israel and the U.S. impose sanctions in the coming weeks, Palestinians say they will try to make up the shortfall from European or Arab nations.

"Otherwise, if they cut off funds, we'll close down the authority, if that's what they want," said Mustafa Barghouti, an independent Palestinian lawmaker who helped mediate the reconciliation deal.

Levy called the standoff a "game of political chicken," noting that the U.S. and even Israel might not want to risk the chaos and violence that could follow a collapse of the Palestinian Authority.

To avoid the threat of another international boycott, Abbas is promising to appoint a Cabinet of independent "technocrats" who will not be members of either Hamas or Fatah. The new government will have a limited mandate, running day-to-day affairs and preparing for elections next year, officials said.

Barghouti argued that such a configuration makes the quartet conditions irrelevant because "Hamas is not going to be in the government."

Israeli officials dismiss such claims, noting that Hamas will still play a significant role in selecting ministers and setting policy. Israeli Prime Minister Benjamin Netanyahu, who is lobbying the U.S. and Europe to boycott the new government, has called the Fatah-Hamas partnership a "victory for terror."

To defuse such criticism, some Palestinians predict, Hamas will try to keep a lower profile.

"Political interest requires that Hamas stay away from the government," said Daoud Kuttab, a Palestinian analyst and writer.

Palestinian officials say it now appears likely that Abbas will reappoint Palestinian Authority Prime Minister Salam Fayyad, a moderate and former World Bank official whose continued presence will provide reassurance to the international community, which has praised his work.

It would mark a significant victory for Abbas and a major concession by Hamas, whose leaders have long criticized Fayyad as a tool of the West.

Still, it remains to be seen whether Hamas will agree to take a back seat. During the May 4 signing ceremony, Hamas political leader Khaled Meshaal fought for the right to sit on the podium and address the gathering, rather than allow Abbas to dominate the stage.

In recent days, Palestinian officials, including some from Fatah, have tried to downplay the importance of the quartet demands, drawing attention instead to pledges from Hamas to agree to a cease-fire and allow the new unity government to set military and resistance policy, which Abbas has said will focus strictly on nonviolent, popular protests.

Palestinian officials also are maintaining that Meshaal, during his ceremony speech, implicitly recognized Israel and the peace process by agreeing to work toward a Palestinian state within the borders of the West Bank and Gaza, rather than seek to eliminate Israel, as is called for in the Hamas charter.

Officials in the U.S. and Europe are taking a wait-and-see approach, and several nations seem reluctant to impose financial sanctions as they did in 2007.

"I don't sense at this point that there's going to be a clampdown as was done in the past," said one foreign official in Israel, speaking on condition of anonymity. "But if Hamas is part of the government in any way, shape or form, the quartet principles are going to play a role."