The recent push for Palestinian elections appears to reflect fears that two weeks of street protests demanding increased democracy in nearby Egypt could lead to similar calls in the Palestinian territories.
The Palestinian Authority has not held elections since 2006, leaving Palestinian president Mahmoud Abbas and members of parliament in office after their elected terms ended.
Palestinian Authority spokesman Ghassan Khatib said the Cabinet decision calls for elections in both of the bitterly divided Palestinian territories. He said if Hamas did not allow for vote preparations in Gaza, the balloting would be held only in the West Bank.
Hamas spokesman Fawzi Barhoum said the West Bank government has "no right to call this election". He said Hamas would not participate in any vote, even in the West Bank, until the two governments were reconciled.
They have been bitter rivals since Hamas seized control of Gaza in 2007, leaving Mr Abbas governing only in the West Bank. Repeated Egyptian-backed efforts to reconcile the two groups have failed.
The Palestinian Authority, a huge recipient of American and European aid, has had a spotty record with democracy in recent years.
In 2010, Mr Abbas cancelled local elections in the West Bank when it appeared that his Fatah movement would lose key seats to independents.
Fatah has been burned twice before by heading into elections despite warnings of impending defeat. Hamas scored heavily in 2005 municipal elections and won a strong majority in the Palestinian parliament the next year.
Elections have not been held in the territories since.
Mr Abbas's four-year term expired in 2009, though it has been extended indefinitely. The parliament's term expired in 2010, but the MPs remains in office, although their work is hindered by the split between the territories.
The Palestinian minister of local government, Khalid Qawasmi, said the election is to be for 305 seats in municipalities and village councils in the West Bank and 25 in Gaza.
He said all political groups, including Hamas, could participate.
"The government has no objection to any faction or any list. On the contrary, we invite them to join the election," he said.
Mr Qawasmi denied that the Egyptian upheaval triggered the announcement. The cabinet was complying with a Supreme Court decision that called last year's cancellation illegal, he said.
Palestinian analyst Hani al -Masri acknowledged the court decision, but said he still suspected events in Egypt played a role.
"The Egyptian uprising was an alert to every regime in the region to correct the situation in its country," he said, adding that the Palestinian Authority has been criticised for its handling of freedom of speech and political power sharing.
"Without finding solutions for these problems, no one is immune to upheaval," he said.