After several Palestinian attacks in January, Israel stepped up operations against Hamas, killing the militant group's founder.
With the US and Israel continuing to refuse to deal directly with Yasser Arafat, the Palestinian leader appointed Mahmoud Abbas as his prime minister.
In late April, the US published the much-delayed roadmap, which outlined a step-by-step timetable towards a negotiated Palestinian state, with the first phase contingent on an end to Palestinian violence and Israeli incursions and settlement activity.
In May, the Israeli cabinet endorsed the plan, though it put on record several reservations.
At a summit with the US president in Aqaba, Jordan, in June, Mr Abbas called for an end to the armed intifada, while Israeli President Ariel Sharon declared his support for the creation of a "democratic Palestinian state at peace with Israel".
Further negotiations led to pull-backs of Israeli forces in Gaza and Bethlehem. Mr Abbas secured a temporary cessation of violence from Palestinian militant groups.
In August, after seven weeks of relative calm, the truce disintegrated with a spate of tit-for-tat Palestinian suicide bombings, Israeli raids and targeted killings.
After a long-running power struggle with Mr Arafat over control of the Palestinian security apparatus, Mr Abbas resigned in early September. He was replaced by Arafat loyalist Ahmed Qurei.
Construction of the West Bank barrier continued throughout the year despite growing international criticism.
The Israeli cabinet voted to "remove" Mr Arafat and in December Mr Sharon told the Palestinians he would implement a policy of unilateral separation unless they halted violence.