The Americans, Israelis, Egyptians and British have attempted to cajole Mr Arafat into retreating to the position of figurehead leader, a role they can tolerate because he remains the Palestinians' core symbol of their struggle for a country.
Occasionally Mr Arafat gave ground, but then often subverted the change. He rid himself of one troublesome Palestinian prime minister, blocked reform of the security forces and undercut attempts by his finance minister, much vaunted in the west, to ensure that the Palestinian Authority's billions were accounted for.
But Mr Arafat now faces a potentially much tougher challenge to his overarching control from internal Palestinian rivalries.
Bitterness, fear and desperation have bubbled to the surface in the Gaza Strip, producing what some Palestinian commentators are describing as a mutiny that challenges Mr Arafat's web of control, if not his position as leader.
Several days of chaos have been marked by kidnappings, open threats to some in the Palestinian leadership for their corruption, and mass protests against Mr Arafat's appointment of a relative and close political allies to sensitive security posts in the Gaza Strip.
The Palestinian prime minister, Ahmed Qureia, sent Mr Arafat a letter of resignation and issued a warning. "This is a true disaster. This is a level of chaos that we have never seen before," he said.
Mr Arafat declined to accept the resignation letter, drawing a large cross through it. But Mr Qureia and the entire Palestinian government may still be gone within days, amid growing frustration at what Mr Arafat's critics describe as his greater interest in retaining political control than alleviating Palestinian suffering and confronting Israeli plans to annex large parts of the West Bank.
Mahdi Abdul-Hadi, the founder and head of the Palestinian Academic Society for the Study of International Affairs in Jerusalem, said the immediate confrontation was a battle between reformers and the old guard within the Palestine Liberation Organisation.
But he said the challenge had been prompted by the competition for power in Gaza ahead of the Israeli withdrawal of Jewish settlers next year, and deep disillusionment at the corruption and incompetence of the Palestinian Authority under Mr Arafat's control.
"Arafat is facing for the first time a challenge from within his own house. It's a mutiny."
On Friday gunmen from the al-Aqsa Martyrs Brigade in Gaza briefly kidnapped the territory's police chief, Ghazi Jabali. His abductors accused him of stealing #7m of PA money but the real challenge was to Mr Arafat, who viewed Mr Jabali as one of his most trusted lieutenants in Gaza.
Another group of armed men seized four French aid workers to highlight similar concerns.
The al-Aqsa Martyrs Brigade, an armed offshoot of Mr Arafat's Fatah, distributed leaflets demanding that money stolen from the PA be returned and the guilty men be put on trial.
Mr Jabali was released within hours, along with the French. Mr Arafat immediately sacked the police chief in the hope of placating public criticism, but further infuriated people in Gaza by replacing Mr Jabali with another ally who is distrusted by many, Saed Ajaz. He also named a first cousin, Moussa Arafat, as head of the main security force in Gaza.
Thousands of people took to the streets of Gaza city in protest, marching on the Palestinian legislature. Early yesterday gunmen torched the Khan Yunis security post staffed by officers serving Moussa Arafat. The Fatah leader in Gaza, Ahmed Khals, derided the protests as an attempt to create an alternative leadership to Yasser Arafat, with Israel's backing.
Leading the political challenge to the old guard in Gaza is Mohammed Dahlan, the former PA security minister who is the favoured candidate of Israel and the US to take charge of the territory when the settlers leave. That support has led to him being labelled a collaborator by some of his opponents. But Mr Dahlan is said by his supporters to be doing well in internal elections within Fatah.
Last week, he warned the Gaza Strip was at a crucial juncture that would either see it gain independence or degenerate into the anarchy of Somalia with its warlords.
Mr Arafat's critics say that if credible government is not restored in Gaza, the beneficiaries will be his two principal opponents Ariel Sharon and Hamas, which has built its political challenge to Fatah on the back of the PA's corruption.