The declaration followed intense behind-the-scenes diplomatic activity to prevent a one-man contest on Nov. 7, but leaves Karzai weakened and under more pressure than ever to reform a government seen by many in the West as corrupt and incompetent.
KARZAI'S LEGITIMACY
The legitimacy of Karzai's administration is under a serious cloud after a flawed election process marred by widespread fraud in the first round in August and uncertainty, bordering on farce, before the run-off was cancelled.
Installed after the Taliban were toppled by U.S.-backed Afghan forces in 2001, Karzai can now expect to come under increased pressure to reform an administration seen by many in the West as riddled with corruption.
"The credibility of the Karzai government is not going to be simply decided by this election, it will now be decided by the actions the president takes over the coming days and weeks," a Kabul-based Western official told Reuters.
"The first test will be the formation of his cabinet. If he is serious about reform we need to see that," the official said, speaking on condition of anonymity.
British Prime Minister Gordon Brown spoke to Karzai on Sunday, after Abdullah withdrew, about the need to tackle corruption and "getting the right people into government".
Brown said Karzai must also build up Afghanistan's security forces and step up economic improvement efforts.
ABDULLAH'S NEW STRENGTH
Former Foreign Minister Abdullah campaigned strongly and emerged as a true figurehead among what had in the past been a fractured opposition. The events of the past two days have only strengthened his position further, analysts say.
Karzai will now be under pressure to work with Abdullah to reach some form of agreement over the shape of the next administration.
Even though talks on a power-sharing deal broke down last week, according to Western diplomats in Kabul, Karzai will need to give up some key cabinet positions to Abdullah's camp in order make the government more representative.
"Karzai has lost his legitimacy, he is a very weak president and he cannot govern without reaching out to Dr Abdullah," said Kabul-based political analyst Haroun Mir. "So the ball is in Dr Abdullah's court right now."
Karzai has already told Brown that he was working on a "national unity manifesto" more representative of Afghanistan's diverse ethnic and political factions.
"We need to see a cabinet that is ethnically diverse, that is inclusive of people from the north and the south," the Western official said.
Karzai's support base is mainly among Pashtuns, Afghanistan's largest ethnic group, in the south and the east. Abdullah's is mainly among Tajiks in the north.
THE WEST
In one sense, the declaration that Karzai has been returned brings some kind of resolution for Washington.
U.S. President Barack Obama has been weighing whether to send up to 40,000 more U.S. troops as part of a strategy review and his administration now knows who they will be dealing with.
But selling Karzai as a credible and legitimate partner to an already sceptical U.S. public, and to increasingly fractious U.S. lawmakers, in the face of growing casualties will be difficult.
In the short term, it also means that Western countries with troops in Afghanistan will now not have to risk more casualties securing a run-off in which the winner was already known.
THE TALIBAN
The Taliban had vowed to disrupt the run-off, just as they had in the first round. A suicide attack on a Kabul guest-house last week that killed five foreign U.N. staff brought home the seriousness of that threat.
The Islamist militants, who said Abdullah's withdrawal made no difference to them, will see Monday's decision as confirmation that the democratic process in Afghanistan has failed.
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