After initially announcing his intention to resign in early September, Hariri confirmed that he did not intend to head a new government. Hariri, who often clashed with long-term political rival President Lahoud, said in his resignation statement that due to internal differences he could not form a united government to face Lebanon's internal and external challenges. 'When those goals met with known political facts... I deemed it appropriate to present the government's resignation and decline to nominate myself to lead the government,' his statement said. Lahoud accepted Hariri's resignation during a meeting at the presidential palace.

The trouble began in September, when, under heavy pressure from Damascus and in defiance of a UN resolution calling on Syria to stop interfering in Lebanon's affairs and withdraw its 17,000 troops, Lebanese MPs voted to amend the constitution and extend Lahoud's presidential term by three years. Both Damascus and Beirut rejected the UN's demands, but the ensuing political showdown between pro-Syrian backers of Lahoud and opponents of Syria's influence over the country paralysed the government. Four ministers resigned in protest at the constitutional amendment, while Hariri's credibility suffered a blow after he withdrew his opposition to Lahoud's extended mandate.

Adding to mounting political uncertainty, Hariri's resignation will undoubtedly cast a cloud over the country's economy. The business magnate has been a driving force behind the country's reconstruction since the end of the civil war in 1991. However, his successor must face the unenviable task of dealing with a public debt burden of about $33,000 million, which many blame on the government's borrow-and-spend policies. Lahoud opposed key components of the Paris II privatisation programme, which was designed to raise $9,000 million in funds to curb the country's ever-expanding debt pile. The process of economic reform ground to a halt in 2004 as the November presidential elections dominated the agenda.

Despite Lahoud's extended term having injected an element of certainty into Lebanon's political situation, any new government will have only a limited time to set out and implement a clear strategy before parliamentary elections in May 2005. One of the more notable tasks facing the new government is to push through parliament a new election law in the next six months. If he should stand and win, Hariri would regain his position with a stronger mandate, as he did after winning elections in October 2000, although he would be disadvantaged by not influencing the preparation of the new law. Yet it is widely expected that the legislators who voted against Lahoud's mandate will boycott the consultations to form a new government, leaving the president to pick a pro-Syrian group, which could be forced on to a collision course with the UN.

Hariri first came to office in 1992 and has held the premiership for 10 of the past 12 years. He resigned in 1998 after policy deadlock but regained the premiership two years later.