  The possibility that the peak of the spectral energy distribution (SED) of
prompt GRB emission is produced on compact scales, prior to the acceleration of
the fireball to its terminal Lorentz factor is considered. It is argued that if
dissipation on these scales is associated with pair creation processes, then
the observed clustering of SED peaks can be accounted for quite naturally by
this mechanism. Further dissipation and processing of pairs and gamma rays at
larger radii, can give rise to a nonthermal extension of the spectrum up to a
rather high observed energy. If the nonthermal processes on these scales
conserve the total flux of fireball quanta, then the SED peak, which is
established on much smaller scales, will not be altered significantly. The
asymptotic bulk Lorentz factor in this model should exceed several hundred.
