Khaled Mashaal told a recent meeting in Cairo of Hamas' leadership that he would not run in upcoming elections for the top position, said Izzat Risheq, a confidant of Mashaal who attended the gathering. Moussa Abu Marzouk, Mashaal's deputy, also confirmed the decision.
Mashaal will remain in his post until a new leader is chosen, most likely by the end of the year.
Hamas officials said the leadership change would not affect its confrontational approach to Israel. The group's founding charter calls for the destruction of the Jewish state, and its leaders have staunchly rejected Palestinian peace efforts with Israel.
It may however impact the balance between exiles like Mashaal, who tended to favor reconciliation with other Palestinian groups, and influential members from the group's Gaza Strip stronghold who are more reluctant to give up their grip on power.
Mashaal's announcement comes at a turbulent time for Hamas. Officials said Mashaal was motivated by a number of factors, including the Arab Spring protests jolting the region and the simmering struggle between Gaza and the exiles.
Mashaal has led Hamas since 1996, helping to build the movement into a potent force.
Forging an alliance with Iran and Syria, where the group has maintained its headquarters, it also has become an important regional political player. The group swept Palestinian legislative elections in 2006.
After a short-lived attempt at sharing power with President Mahmoud Abbas' Fatah movement, Hamas overran the Gaza Strip in 2007. Hamas continues to rule Gaza, while Abbas governs in the West Bank. The two factions have been unable to reconcile.
Risheq said Mashaal told the recent leadership meeting that given the changes sweeping the region, it is time for him to step down and make way for "new blood."
But other Hamas officials say there have been differences between Mashaal and the influential Gaza leadership over key policy issues, particularly in the area of Palestinian reconciliation. Gaza leaders believe Mashaal was too willing to make concessions in attempts to reconcile with Abbas.
Mashaal also may have some personal motives. He is expected to take on a position with Hamas' parent, the pan-Arab Muslim Brotherhood, whose offshoots have grown in power thanks to the toppling of autocrats in the Arab Spring. Egypt's new president, Mohammed Morsi, hails from the group.
He may potentially seek a leadership role in the Palestine Liberation Organization. Hamas has long sought a place in the PLO, which is dominated by Fatah.
The officials spoke on condition of anonymity because they were discussing the internal workings of the group.
Although a successor has not been named, the two leading candidates are Abu Marzouk, who led Hamas in the 1990s until he was imprisoned in the U.S. for two years, and Gaza Prime Minister Ismail Haniyeh.
Both men are from Gaza, a reflection of the rising influence of Hamas' Gaza wing.