Bahrain's Shiite majority has long complained of discrimination and political persecution in the island kingdom, the home of U.S. Navy's 5th Fleet. The protesters demanded the prime minister step down because of corruption and a deadly crackdown on the opposition in which seven people were killed.
Sheik Khalifa bin Salman Al Khalifa, the prime minister and the king's uncle, has been in power for 40 years, part of a Sunni dynasty that has ruled Bahrain for two centuries.
Khalifa was presiding over a weekly meeting of government ministers on Sunday.
The Shiite opposition groups have called for a constitutional monarchy, but some of the protesters camped out in the capital's Pearl Square are demanding that the Sunni monarchy step aside altogether.
Currently, one house of Bahrain's parliament is the only elected body, but it holds limited authority since all the country's decisions -- including the appointment of government ministers -- rest with the king.
Even the 40-member institution has been in limbo since the 18 opposition legislators resigned last month to protest the government's deadly crackdown.
Bahrain holds particular importance to Washington as the host of U.S. Navy's 5th Fleet, the main American military counterweight to Iran's efforts to expand its armed forces and reach into the Gulf.
Hamad assigned Crown Prince Salman bin Hamad Al Khalifa to lead talks with the opposition and ordered the creation of 20,000 new government jobs.
Unemployment is particularly high among Shiite youth. They complain of government jobs often being given to Sunnis from Arab countries and Pakistan, who were granted Bahraini nationality to boost Sunni numbers in the Gulf nation.
Opposition leaders have accepted Salman's invitation for talks, but no date has been set for them to meet.