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The differentiation of hepatic and pancreatic progenitor cells during embryogenesis is determined by inductive factors secreted by neighboring cells. These factors stimulate and repress the expression of key regulatory genes in progenitor cells, thereby establishing unique genetic programs that determine cell fate. The signaling network that controls liver and pancreas development is highly dynamic with respect to both concentration and timing of exposure to several key inductive factors. Not only do large changes occur within short time frames, multiple signaling pathways also converge on the same target genes. Given the intense effort under way to generate certain differentiated cell types from both embryonic and induced pluripotent stem cells, greater understanding of how different inductive signals interact with each other may be essential for the eventual success of such efforts.