Palestinian factions announced they would form a unity government within five weeks, a move that could imperil U.S.-backed peace talks with Israel.
The pact between Gaza-based Islamist group Hamas and Palestinian President Mahmoud Abbas' Palestinian Liberation Organization envisions holding national elections six months after a vote of confidence by the Palestinian parliament, both sides said at a joint conference on Wednesday.
Hamas and Abbas' Fatah party-led Palestine Liberation Organisation held a fence-mending session on Tuesday in the Gaza Strip. It was their first since a 2007 conflict in which forces loyal to the Western-backed Abbas lost control of the enclave to Hamas, an opponent of peace with Israel.
Earlier, Israeli Prime Minister Benjamin Netanyahu said Abbas had to choose between peace with Israel or peace with Hamas.
"Does he (Abbas) want peace with Hamas or peace with Israel?" he told a reporter before the agreement was officially announced. "You can have one but not the other."
On Tuesday, Abbas warned that if Mideast peace talks fail Israel will be responsible for governing, funding, and providing security for Palestinian lands.
Reuters contributed to this report.