Palestinian rival factions Fatah and Hamas named President Mahmoud Abbas as the head of a temporary unity government during a broadcasted signing ceremony on Monday.
The deal was signed by president Abbas and Hamas leader Khaled Meshaal, in Doha, Qatar, and praised by both factions as a step forward for Palestine.
"Both parties are serious in moving forward to fold the page of strife between both parties and to strengthen the Palestinian national unity government," Meshaal told CNN.
"The Palestinian reconciliation is no longer a Palestinian interest but also an Arab interest," Abbas told CNN.
The opposing political factions came close to civil war in 2007, when Hamas, a group the United States and the European Union consider a terrorist organization, took forceful control over Gaza. Fatah managed to keep control of West Bank.
According to Hamas officials, the deal includes an agreement over security issues that have long divided the two factions.
The Palestinian cabinet released a statement lauding the agreement as progressive.
"The prime minister said this achievement is a response to our people's aspirations and ambition to reunify the homeland and its institutions," the statement said. "This is an imminent national necessity in addition to being a cornerstone in utilizing our people's capabilities to guarantee ending the occupation and continuing our national readiness for the establishment of the independent State of Palestine with Jerusalem as its capital on 1967 borders."
Mustafa Barghouti, Independent Palestinian lawmaker, told CNN he also sees the agreement as a step forward for Palestine.
"What we see is a slow movement, and we hope that this meeting will give a push to reconciliation to go faster," Barghouti said. "I hope that the most important thing that this agreement will lead to is actual activation of (a) real democratic system and that all obstacles that are still in the way of election will be removed."
Israeli Prime Minister Benjamin Netanyahu was not so pleased with the new agreement, which he sees as Abbas opting to "abandon the way of peace," between Israel and the Palestine.
"Hamas is a terrorist organization that strives to destroy Israel, and which is supported by Iran," Netanyahu said on Monday at a meeting of the Likud party in the Knesset, Israel's parliament. "Hamas and peace do not go together."
"Over the past few weeks, Israel and elements in the international community have made great efforts to advance the peace process." If president Abbas implements the new deal, "he will have chosen to abandon the way of peace and to join with Hamas, without Hamas having accepted the minimal conditions of the international community," Netanyahu said.
"Not only does Hamas not recognize Israel and the (previously signed) agreements, it has not abandoned terrorism. It is continuing with terrorism and to arm itself in order to perpetrate even deadlier terrorism." In a message to Abbas, Netanyahu added "It is either peace with Hamas or peace with Israel; you cannot have it both ways."
Palestine's statehood is recognized by an estimated 66 percent of the world's countries. It is still fighting to be recognized by Israel, the United Nations, the United States and other essential Western nations.
Hanan Ashrawi, a member of the PLO executive committee, sees the unity agreement as a step forward in getting other nations to recognize Palestine as an independent state.
"The international community has persistently used this division against us, particularly the U.S., when it described the Palestinians as not qualified for statehood because we are divided, so this would remove one pretext," Asrawi told CNN.
The Mideast Quartet, made up of the United Nations, the United States, the European Union and Russia, has since asked the new Palestinian unity government to recognize Israel and reject acts of terror, CNN reported.