The move, announced at a joint news conference by both sides, includes the intention to hold 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 the Gaza-based Islamist group Hamas, which won the Palestinian elections in 2006 and in 2007 took control of the Gaza Strip from forces loyal to the western-backed the president, Abbas.
Arab-brokered unity pacts reached between the two sides had not been implemented to date, and many Palestinians were left feeling sceptical about their leaders’ reconciliation pledges.
“This is the good news we tell our people: the era of division is over,” Ismail Haniyeh, Hamas’s prime minister, told Palestinian reporters.
Hamas has repeatedly battled Israel, which it refuses to recognise. Before the announcement on Wednesday, Israel’s prime minister, Binyamin Netanyahu, cautioned Abbas over the unity efforts, saying he had to choose between peace with Israel or its Islamist enemy.