The Gaza-based Islamist group Hamas and President Mahmoud Abbas's Palestine Liberation Organization (PLO) have agreed to implement a unity pact.
The move envisions forming a unity government within five weeks and holding national elections six months after a vote of confidence by the Palestinian parliament.
Palestinians have long hoped for a healing of the political rift between the PLO and militant Hamas, which won a Palestinian election in 2006 and seized control of the Gaza Strip from forces loyal to Western-backed Mr Abbas in 2007.
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But Arab-brokered unity pacts reached between the two sides have yet to be implemented, leaving many Palestinians sceptical about reconciliation pledges.
"This is the good news we tell our people: the era of division is over," Hamas prime minister Ismail Haniyeh said yesterday.
Hamas has repeatedly battled Israel, which it refuses to recognise. Before yesterday announcement, Israeli Prime Minister Benjamin Netanyahu cautioned Mr Abbas over the unity efforts, saying he had to choose between peace with Israel or its Islamist enemy.
Mr Abbas's Fatah party has remained in control of the Palestinian Authority in the occupied West Bank and pursued troubled peace talks with Israel, which are set to expire on April 29.