Two main strategies are used for establishing commitment and thus initiating the series of events that result in cell differentiation: inheritance of cytoplasmic determinants and perception of external inductive signals.

A cell can divide to produce 2 daughter cells committed to different fates. This can be achieved through the asymmetric distribution of cytoplasmic factors (e.g. proteins and RNAs) that can influence the fate of the daughter cells. Cytoplasmic determinants are found in many developmental systems: this strategy is used frequently in early development, when maternal gene products, localized to particular egg regions, are asymmetrically distributed to different blastomeres during cleavage. 

Fig. 3 Intrinsic asymmetry localizes polarity proteins (red), which instruct cell fate determinants (green) to segregate asymmetrically during mitosis in the absence of extracellular cues (DNA, blue)-Modified from Neumuller & Knoblich GENES & DEVELOPMENT 23:2675–2699, 2009

Unlike the segregation of cytoplasmic determinants, induction is an extrinsic process that depends on the position of a cell in the embryo. Induction is a process whereby one cell or group of cells can influence the developmental fate of another, and is a common strategy to control differentiation and pattern formation in development. Two identical cells can follow different fates if one is exposed to an external signal (often produced by a different cell) while the other is not. 

The inductive signal can be a protein or another molecule (secreted by the inducing cell) that interacts with a receptor on the surface of the responding cell (although some inductive signals pass the cell membrane and interact with cytosolic receptors). The signal initiates a signal transduction cascade that influence the activity of transcription factors and/or other proteins eventually altering the pattern of gene expression. Responding cells may show a single stereotyped response to the inductive signal, or a graded response dependent on its concentration, in which case it is called a morphogen*. 

The response to inductive signals depends on the ability of the cell to receive the signal and react in an appropriate manner. This ability is called competence. The loss of competence (e.g. loss of cell surface receptors, signal transduction apparatus, or downstream target transcription factors) is one mechanism by which cells become irreversibly committed to a given developmental pathway. In other words the cell is no longer able to respond to the inductive signals.

Two types of induction can be distinguished on the basis of the choices available to the responding cell: instructive and permissive induction. Instructive induction occurs where the responding cell has a choice of fates and will follow one developmental pathway following induction, and an alternative pathway in absence of the inductive signals. In example, in the early Xenopus embryo, ectoderm will form the neural plate in presence of inductive signals from the notochord, but epidermis in the absence of induction. Permissive induction occurs where the responding cell is already committed to a certain fate, and requires the inducing signal to proceed in the developmental pathway.

Read more on cell-cell communication and inductive signals at http://www.ncbi.nlm.nih.gov/books/NBK9999/