The Palestinian President and leader of the party Fatah Mahmoud Abbas said that Palestinians had decided to "turn the dark page of division never".
Abbas and Khaled Meshal of Hamas was not met since the expulsion of Fatah in Gaza in 2007.
This expulsion followed a surprise of the election victory of Hamas, a year earlier.
Correspondents say that recent Arab uprising gave new impetus to the reconciliation.
The agreement paves the way for an interim Government joint before the national elections next year.
The Palestinian Authority led by Fatah runs parts of the West Bank, while Hamas controls the Gaza Strip.
"We forever turn the black page of division," said Mr. Abbas.
"Our people have always rejected this rift." All factions should now demonstrate that they have drawn from this difficult experience, and that they will accept a democratic Government through the next election. ?
He added that Israel must now "choose between settlements and peace."
"We reject blackmail and it is no longer possible for us to accept the occupation of Palestinian lands", he said.
Mr. Meshal said that Islamist group "only struggle is with Israel" and that the dispute with the faction Fatah of Mr. Abbas is "behind us".
"Time of peace."Israeli Prime Minister Benjamin Netanyahu, speaking during a visit to London, said: "what happened today in Cairo is a tremendous blow for peace and a great victory for terrorism".
He had urged Mr. Abbas to choose peace with Israel on a reconciliation with Hamas.
The United Nations Coordinator special for the peace process in the Middle East, Robert Serry, was in Cairo to attend the ceremony, with the Egyptian Minister of Foreign Affairs Nabil al-Arabi and the Arab League Chief Amr Moussa.
Correspondents say that it is a first sign of political changes in the Arab world can affect the dynamics of the Israeli-Palestinian conflict.
President of the former Egyptian Hosni Mubarak had believed strengthen Hamas, but the new Government in Cairo adopted a less hostile position against the Islamist group.
The BBC Jonathan Head to Cairo, said the two leaders Palestinian rivals carry with them the hopes of millions of Arabs to put an end to the infighting that has so weakened the Palestinian cause.
The first step after the agreement enters into force will be to form an interim Government of technocrats whose mission will be to work on reconciliation and preparing new elections.
Key members of Hamas and Fatah will stay out of this Government for the moment.
But there are deep differences still to be resolved on the opportunity to recognize and negotiate with Israel and on the way to share security in the Gaza Strip and West Bank, our correspondent says.
Continue reading history main January 2006 - Hamas WINS authority Palestinian Legislative electionMarch 2006 - the Hamas Government oath; US and EU suspend tiesFebruary-March 2007 - Fatah and Hamas agree on coalition of shape at the end of growth between the factions warfareJune - 2007 Hamas seized control of Gaza from Fatah after continued fighting. the Government of unity dissolved, Israel strengthens the blockade of Gaza StripIsrael has suspended transfers to the Palestinian Authority, Israeli Finance Minister saying payments would be stopped net up to what it was clear money there would be for Hamas activists.During this time, it is known if the Western powers will deal with the new Government is out of the agreement of the unit.
The Quartet of mediators - United States, the European Union, the United Nations and the Russia - long demanded that Hamas renounce violence and recognize that the principle of Israel the right to exist.
Recent months, tens of thousands of Palestinians took the streets of Gaza and the West Bank to seek political unity in the calls for democracy elsewhere in the region.
Correspondents say that while events were not on the scale of these elsewhere, they have obtained clear attention to Palestinian political leaders.
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