Obama came out on top in that confrontation but not through a head-to-head vote. Instead, he capitalized on his opponent's mistakes to get her thrown off the ballot so that his name was the only choice presented to voters.
His willingness to knock his opponent off the ballot, say Illinois political insiders, was an early demonstration of the tenacity that has helped him in the primary process against Clinton thus far.
"In Chicago, this is a blood sport," said Ron Davis, a South Side political activist who helped Obama in the 1996 contest.
At the time, Obama was a lawyer and lecturer at the University of Chicago law school. Alice Palmer, the state senator representing that part of the city, had decided not to run for re-election. She was aiming for a congressional seat in a special election being held to fill a vacancy.
To reassure her legislative constituents that they'd be in good hands, Palmer told them she'd find a good replacement, said Davis, who was friendly with Palmer at the time. "She went out and recruited Barack."
So everything seemed set. Palmer would move to Congress and Obama would take her place in the Illinois Senate.
But then Palmer lost the special congressional election.
Suddenly, this well-liked community leader faced being out of office after four years in the state Legislature.
"We all thought she was an excellent state senator and encouraged her in some way to get back on the ballot," said Robert Starks, a longtime friend of Palmer. "Initially, she was a bit hesitant, but after so many people encouraged her, she began to warm to the idea."
Palmer finally asked Obama to halt his legislative campaign so she could run for re-election.
He refused.
"He was not about to withdraw. He had put a lot of energy and time into it," said state Rep. Barbara Flynn Currie, a Democrat who represented the same part of Chicago as Palmer. "I thought it was pretty gutsy of him to stay in."
Saying she had given Obama her word, Currie continued to back him even after Palmer changed her mind and tried to run again.
Community activist Lois Friedberg-Dobry made the same choice.
"Barack had already gotten a committee together, people had made commitments, and he had raised money," Friedberg-Dobry said.
"This was a very strange time to ask any politician to go back to those people and say, 'I changed my mind."' Palmer, who is a Clinton supporter, decided she wouldn't back down either.
She filed petitions to get on the ballot for the spring 1996 primary, but Obama took steps to make sure voters wouldn't get a chance to pick her. His supporters scoured her petitions, and those of two other would-be candidates, for any technical flaws.
They ended up filing complaints alleging that Palmer and the others hadn't collected the 757 valid voter signatures needed to qualify for the ballot.
Davis, who formally filed the complaints, said the problems included signatures from people living outside the district or who weren't registered to vote. Some petitions were circulated by ineligible campaign aides, making every signature invalid.
Palmer ended up dropping out of the race instead of trying to argue that she had met the petition requirements. The other two candidates were ruled ineligible by Chicago election officials.
Obama, as the only candidate on the ballot, won the primary, which in heavily Democratic Chicago meant he would go on to win the general election, too.
Petition challenges are common in Illinois politics, and even some Palmer supporters say Obama acted appropriately. "He did what any politician or campaigner does," said Timuel Black, a Palmer friend and campaign adviser.
Obama friend and campaign adviser Valerie Jarrett said Obama had no qualms about challenging Palmer's petitions.
"I don't think it was a difficult decision - it was a painful decision. The fact that she changed her mind was painful to him," she said. "He told her from the beginning, 'Once I'm in, I'm in."' Many people familiar with the clash called Obama's decision an example of his resolve. Jarrett sees it as an example of his integrity, too. He had recruited supporters and told them he'd be running, and he kept his word, she said.
Palmer, who now serves on the board of a state pension system, did not return repeated messages. But others confirm that she and Obama have been estranged since their clash, and she ran in the Illinois primary to be a Clinton delegate.
"My guess would be that she felt he should have withdrawn, and she is bitter," said Black, a Palmer friend and campaign adviser.
"Since he was younger ... he had more future opportunities than she might have."
