RAMALLAH, West Bank, April 15 (Ali Sawafta and Noah Browning/Reuters) - Palestinian President Mahmoud Abbas is likely to keep Prime Minister Salam Fayyad in office for the next few weeks while the United States tries to revive Middle East peace talks, officials said on Monday.

Abbas accepted the resignation of Fayyad on Saturday, adding a layer of uncertainty to local politics just when Washington had resumed efforts to end the generations-old conflict between Palestinians and Israelis.

However, officials close to Abbas said they expected Fayyad, who is widely respected in the West but much less so among his own people, would carry on in a caretaker capacity until it became clear if anything would come from the U.S. drive.

U.S. Secretary of State John Kerry met both Abbas and Fayyad last week and is expected to return to the region before the summer to continue his consultations aimed at reviving negotiations that collapsed in 2010.

It looks like the president will wait to see the result of the two months that Kerry has asked for before he nominates a new prime minister, said a senior official close to Abbas who declined to be named.

Palestinian law stipulates that Abbas should appoint a successor within two weeks. However, the president himself has overstayed his own mandate by four years and parliament has not met for six, indicating flexibility in the rulebook.

The Palestine Liberation Organisation, of which Abbas is the chairman, is due to meet on Thursday to discuss the situation.

The outcome of Kerry's mission could determine the replacement for Fayyad, who has been prime minister since 2007 and is credited in the West with developing Palestinian institutions primed for independence.

Should Kerry fail to overcome the many hurdles blocking the route to talks, then Abbas might decide to pursue reconciliation with his rivals in the Islamist Hamas movement, which rules the Gaza Strip, and seek to form a national unity government.

ABBAS'S OPTIONS

Under the terms of a tentative 2012 deal with Hamas, put forward by Qatar, Abbas had agreed to head such a government opening the way for long-overdue elections.

Alternatively, he might seek a technocrat candidate, whose presence in government would not be perceived as an obvious threat to Hamas, such as Mohammed Mustafa, the head of the Palestinian Investment Fund.

But if reconciliation remains stymied by mutual recrimination, Abbas might decide to hand the premier's job to an ally within his own party, Fatah, giving back to it all the levers of power within the Western-backed Palestinian Authority.

Fahmy Al-Zaarir, a senior Fatah official, wrote on his official Facebook page that there were two options for a replacement for Fayyad, a former International Monetary Fund economist who never established his own power base.

Either a government headed by the president as a substantial step towards concluding reconciliation ..., or a national government in the West Bank that should be led by a member of Fatah's Central committee, he wrote.

One such contender would be Mohammed Shtayyeh, a senior Fatah leader and influential government economist.

Fayyad himself remains determined to quit, whatever happens in coming weeks, fed up with months of political infighting and angered that Abbas did not do more to shield him from criticism.

Confidants of the prime minister say Abbas and his party resented Fayyad's strong rapport with Western leaders and found him an easy lightning rod for criticism of economic woes tied to factors beyond his control, such as the Israeli occupation.

Fayyad's problems with Fatah led to his resignation and the presence of power centres within Fatah forced him to leave, analyst Abdel-Majid Sweilim said.

However, few will covet Fayyad's post.

It is a very difficult situation. The economy cannot realise its potential under the occupation. It will stay like that for as long as the Israelis maintain their restrictions, former Finance Minister Nabil Qassis told Reuters.

Israel's security cordon around Gaza and its security restrictions in the West Bank limit the scope for a viable Palestinian economy and contribute to an unemployment rate of almost 25 percent, the World Bank said last month.

(Additional reporting By Nidal al-Mughrabi in Gaza; editing by Crispian Balmer and Mark Heinrich)