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The decision was a major victory for Hezbollah and the latest sign that the Shiite militant group, by resorting to force, appears to have gained the upper hand in a power struggle with the government.
Seconds after the announcement, celebratory gunfire erupted south of Beirut, a Hezbollah stronghold.
Clashes between government supporters and opponents broke out last week after the Cabinet confronted Hezbollah with decisions to sack the airport security chief for alleged ties to the group and to declare the militants' private telephone network illegal.
Hezbollah leader Hassan Nasrallah said that amounted to a declaration of war and sent his armed fighters into the streets for the first time since the civil war ended, demanding the government revoke the decisions.
Fierce street battles, many of them along sectarian lines, erupted and Hezbollah and its Shiite allies seized much of Muslim west Beirut by force.
At least 54 people were killed in recent violence in Beirut and other areas of Lebanon.
Information Minister Ghazi Aridi said the government made a "courageous" decision to revoke the measures "in view of the higher national interest."
His announcement came at the end of a five-hour Cabinet meeting, the length of which reflected the pressure on Prime Minister Fuad Saniora's government to cave in to the Hezbollah demand.
Source: By DDNEWS