Mahmoud Abbas, the president of the Palestinian Authority (PA), has agreed to lead an interim national consensus government to prepare for upcoming elections, under an agreement signed in the Qatari capital.
The "Doha Declaration" was signed in the Gulf state on Monday by Abbas and Hamas chief Khaled Meshaal in the presence of Sheikh Hamad bin Khalifa Al Thani, Qatar's emir.
The agreement states that the new Palestinian government will comprise "independent technocrats," and will also be responsible for overseeing reconstruction efforts in the Gaza Strip.
Benjamin Netanyahu, the Israeli prime minister, condemned Monday's deal, saying it would be impossible to reach peace with a government that included Hamas, which Israel and Western nations consider a terrorist group.
"It is either peace with Hamas or peace with Israel. You can't have them both," Netanyahu said.
A new attempt to restart low-level talks last month ended without a breakthrough. With the reconciliation deal, Abbas appears to have concluded that he has a better chance of repairing the Palestinians' internal troubles than of reaching an agreement with the hardline Israeli leader.
The European Union offered qualified support, saying it considered Palestinian reconciliation and elections as important steps toward an eventual Israeli-Palestinian peace deal.
The EU, one of the major financial backers of the Palestinian Authority, "looks forward to continuing its support," provided the new Palestinian government was committed to nonviolence, recognised Israel and supported a negotiated solution to the Mideast conflict, said Michael Mann, a spokesman for EU foreign policy chief Catherine Ashton.
Abbas will assume the role of prime minister and prepare for general elections in the West Bank and Gaza.
The new government will be responsible for the "smooth implementation of presidential and parliamentary elections," according to the declaration which was read out to reporters.
It did not specify when the elections would be held.
A separate meeting that will bring together all other Palestinian factions will be held in Cairo on February 18.
"That's when we'll set the date for the parliamentary and presidential elections," a Palestinian official told the AFP news agency before Monday's declaration.
Among other major issues to be decided in Cairo are elections for the Palestinian National Council, the legislative body of the Palestine Liberation Organisation, which does not include Hamas, the official said.
"We agreed on the importance of holding the elections quickly ... and removing any obstacles that might delay the polls," said Fatah spokesman Azzam al-Ahmad, who is accompanying Abbas in Doha.
The two factions reached a reconciliation pact almost a year ago, seeking to end more than four years of separate governments in the Hamas-controlled Gaza Strip and the West Bank, which is ruled by Abbas' Western-backed PA.
As part of the deal, an interim unity government was to prepare for presidential and parliamentary elections.
However, both sides failed to carry out promised goodwill gestures and disagreed sharply over the composition of an interim government.
Abbas initially proposed that Salam Fayyad, the appointed prime minister of the PA, serve as head of the transitional unity government, but Hamas objected.