A report from Gaza and the West Bank previewing Wednesday's Palestinian parliamentary elections. Experts predict a close contest between the ruling Fatah party and the Islamic military movement Hamas.

MARGARET WARNER: Ghazi Hamad is the new public face of the radical Islamic group Hamas. And if everything goes according to plan -- and polls -- he's likely to be savoring election tomorrow night to a seat in the new Palestinian parliament from his hometown of Rafah in the Gaza Strip.

The 41-year-old newspaper editor has been an active member of Hamas for nearly 25 years. He spent five of those years in an Israeli jail for supporting the group's armed struggle against Israeli occupation and the very existence of the Israeli state.

But today Hamas leaders like Ghazi Hamad have a new goal: Establishing their mainstream political credentials in a bid for Palestinian hearts, minds and votes.

GHAZI HAMAD: We are a moderate organization, really. We are not radical organization and we are not an extremist or fundamentalist. No, we are an open-minded organization. We believe in democracy and freedom and political pluralization. We respect all people, so I think we can create a new society.

MARGARET WARNER: That Hamas wants to create a new society in the Gaza Strip and the still-occupied West Bank is not in doubt. What that new society might look like was on display Monday in Ramallah, home to the current Palestinian government run by the late Yasser Arafat's party, Fatah.

Hamas's closing campaign rally brought downtown Ramallah to a standstill in a sea of green that demonstrated the discipline and Islamic ideology that has brought Hamas this far: Boys and men at the front; girls and women at the back; guns and facemasks on display.

Over two decades, Hamas has claimed responsibility for deadly attacks that have killed more than 1,000 Israelis, prompting the U.S. and European Union to declare it officially a terrorist organization.

Hamas has largely honored a year-long cease-fire requested by the Palestinian Authority after Arafat's death. But Hamas leaders say their current political campaign does not mean they're ready to abandon the armed struggle.

MARGARET WARNER: In 1996, Hamas boycotted these elections. Why are you taking part now?

GHAZI HAMAD: Because not all the people is Hamas. There's part of the people that believe in peace process, they believe in peaceful solutions.

MARGARET WARNER: How can you be part of the political process and continue the armed resistance?

GHAZI HAMAD: I think Israel do the same thing. They fight against us, use assassination against us, they build settlements against us, demolish homes at the same time, and at the same time they talking about peace process-- the same thing.

But Hamas believe also we have to mix between the political actions and the also military actions. We cannot drop the resistance against occupation, because our territories are under the occupation. It is very difficult for us to go to negotiations without teeth, without weapons.

MARGARET WARNER: Clearly something about Hamas's message is resonating with voters here. Opinion polls suggest that tomorrow Hamas will win what would have been unthinkable a year ago, at least one-third of the vote. In the socially conservative Gaza Strip from which Israel withdrew its settlers last August, young voters flock to Hamas rallies, drawn by the group's effective delivery of community services and their disappointment with Fatah's leadership. Twenty-eight-year-old O'la Hassanein used to support Fatah, but no more.

O'LA HASSANEIN (Translated): I have counted on Fatah, but now I support Hamas because my husband is in prison and I want Hamas to clear the mess taking place here in Gaza.

MARGARET WARNER: Support also seems strong in parts of the more prosperous and cosmopolitan West Bank, like this market street in Ramallah where Hassan Nibali owns a general store.

HASSAN NIBALI (Translated): I will vote for Hamas, of course, because I am convinced that they are the right people. And I hope they will be able to make changes for the Palestinian people. We waited for over ten years, waiting for something to happen, and we didn't see anything. So we hope the people of change and reform will be able to bring change and reform.

MARGARET WARNER: "Change and reform" is the Hamas slogan used liberally in its western-style TV ads. They hammer home the group's central message about the failure of Fatah's decade-long rule under Israel's occupation.

Security -- or the lack of it -- is another big issue, especially in the Gaza Strip, which has verged on chaos since Palestinian security forces took over last August. And the ever-present sense of anarchy was on display in Ramallah just last night. The Israeli army came to town reportedly to raid a house, and that brought young men onto the streets at 1:00 AM for a stone-throwing standoff against soldiers firing teargas.

Frustration over the desperate shape of the Palestinian economy is another campaign issue. Unemployment in Gaza stands at more than 65 percent. That's due in part to Israel's virtual shutdown of the Erez Crossing, preventing Gazans from reaching their former jobs on Israeli soil. Before a wave of suicide bombings terrorized Israeli society, the crossing teemed with life. Today's it's all but deserted.

Israeli security allows only a trickle of Palestinians to enter Israel, and only after lengthy and, to Palestinians, humiliating security checks that can take more than four hours to complete.

And then there is the issue of corruption within the ruling Palestinian Authority. It's symbolized in the minds of many by the villas owned by party big shots along the beaches of Gaza.

Leading figures in Fatah have long been accused of enriching themselves from international donor funds meant for their people. Hamas says Fatah has had ten years to deliver, but didn't, not on the economy, nor on security, nor negotiating peace with Israel. And now Hamas says it's their turn to try.

The fact that Hamas hasn't said how they'll manage to deliver when Fatah couldn't doesn't appear to have appear to have dented their growing popularity, for though Hamas is new to politics and considered a terrorist group in the West, they appear to have fully grasped one of the most successful campaign pitches in the West: The anti-incumbent message of "Throw the rascals out."

The "rascals" in this case are the candidates fielded by Fatah. And despite the buoyant spirit of their closing campaign rallies, they know they're about to lose their monopoly on power. They wasted too much time on an internal struggle over ballot positions between the party's old guard and its younger members, and they were late to grasp the challenge Hamas presented.

Nabil Shaath, a war horse of Palestinian politics from the Arafat era, is managing Fatah's campaign. He now admits Hamas's attacks have hit home with many voters.

NABIL SHAATH: Fatah ruled the PLO for 40 years, ruled the Palestinian Authority inside here for 11 years, and of those 40 years. To be in government for 40 years you are bound to make mistakes, you are bound to see some people make use of their authority for self-enrichment; you are bound to see people making mismanagement decisions that led to problems. It's absolutely natural and human, whatever you do.

MARGARET WARNER: To rally its supporters in the closing days of the campaign, Fatah turned to images of Arafat and other so-called Palestinian martyrs. Its TV spots emphasize the party's own roots in the Palestinian resistance, and its depth of experience, and seek to rebut the charge that it's wasted the last ten years.

NABIL SHAAT: Hamas does not have a program. It doesn't even have a clue of what it takes to get foreign aid, what it takes to get Palestinian private investment. If Hamas would really make a government today, that would be a democratic choice of the Palestinian people and we would accept it, but it's going to be very hard on the Palestinian people.

MARGARET WARNER: It could certainly be hard on Fatah's supporters, many of whom rely on the party for jobs.

As we filmed the rubble of Israeli settlements in Gaza, we encountered several members of the Al Aqsa Martyrs' Brigade. That's Fatah's armed wing. These young men said they were being paid by the Palestinian Authority to guard the rubble, and expressed the hope that a re-elected Fatah-led government would do even more.

SABEH, Al Aqsa Martyrs' Brigade (Translated): I hope that Fatah wins. I hope that in the settlements left from the occupation they will make us projects that will employ people and reduce the number of unemployed.

MARGARET WARNER: Like the Israeli-built wall that now separates most Palestinian villages from Jewish settlements on the West Bank, the peace process is also an enormous issue on the campaign landscape. Already, influential younger voices within Fatah are urging the party's old guard to stand ready to include Hamas in the Executive Palestinian Authority, saying that will actually enhance prospects for a negotiated peace with Israel.

KHADURA FARES (Translated): Hamas gave more than one signal that it is a pragmatic ideological movement and is willing to enter political life. Our responsibility in Fatah is to help Hamas change its political program, to lead the whole Palestinian people in their struggle under just one program. Then Israel will understand that the peace agreements signed with the Palestinian people are signed with all the people, and not just with one party or another.

MARGARET WARNER: Some Hamas leaders are now indicating a willingness to reach an accommodation with Israel, at least in the short term, if Israel will return to the borders that existed before the 1967 war.

But by its own admission, Hamas's thinking on the issue is only beginning to evolve, and old guard Fatah leaders argue that evolution will take too much time.

NABIL SHAATH: It might take years. Which we cannot afford, our people cannot afford to lose.

MARGARET WARNER: Israeli intellectual and author Hirsh Goodman says that his country, which has waged a campaign to assassinate Hamas leaders, faces a big choice if the group now emerges as a serious force in the Palestinian power structure.

HIRSH GOODMAN: Frankly, Fatah has its own Al Aqsa Brigades which are terrorist organizations with suicide bombers. It's hypocritical of us to say, "We're going to speak to these blokes and not to these blokes." So for the first time there's a growing body of opinion here that's saying, you know, "Maybe Hamas," you know, maybe have them like involved in the process rather than underground, and have them constructively engaged.

MARGARET WARNER: Governments overseas also will face a dilemma if Hamas becomes a political player.

The U.S. and European Union will have to decide whether to continue sending millions of dollars in development aid to the Palestinians if their government includes a group that hasn't renounced violence.

Also at stake, with perhaps the greatest implications for the Middle East, may be the continuing ability of Palestinians to do whatever they want to do in their private lives.

At Roots, an up-market restaurant catering to the well-off and well-connected in Gaza, the secular lifestyle enjoyed by many Palestinians is on open display.

But Hamas says it wants to Islamicize Palestinian society. Headscarves have become more prevalent already, and alcohol is off the menu of all restaurants in the Hamas stronghold of Gaza.

GHAZI HAMAD: We want Islam to run the life of our people because we think it's the best solution and the best key for people, really. I think that Islam, it gave the solution for the people in all aspects of life, in education, in culture, in industry, economy, and environment and everything.

MARGARET WARNER: This prospect leaves Hamas's opponents deeply troubled. Independent candidate Hanan Ashrawi, a familiar figure in the West after years of involvement in peace negotiations, worries about the social conflict that could erupt if Hamas leaders enter the corridors of power.

HANAN ASHRAWI: This is a battle over the soul of Palestine. What kind of society are we going to have? What kind of collective ethos are the Palestinians going to have? Are we going to be transformed into a sort of regressive, closed, ideological religious society, or are we going to maintain our open, democratic, pluralistic system of governance and the system of social development?

MARGARET WARNER: One thing's for sure: Tomorrow's elections are set to open a new chapter in Palestinian history, with all that entails for Palestinians, Israelis and the wider world.