Palestinian Prime Minister Rami al-Hamdallah convened a cabinet meeting in the Hamas-controlled Gaza Strip for the first time in three years.
This marks a major step towards reconciliation between the mainstream Fatah party and Islamist group Hamas.
“Today, we stand before an important, historical moment as we begin to get over our wounds, put our differences aside and place the higher national interest above all else,” Hamdallah said.
Tuesday's meeting in Gaza took place at the residence of Palestinian President Mahmoud Abbas. Hamas seized the Gaza Strip in 2007 in fighting with Fatah forces loyal to Abbas and has ruled the impoverished desert enclave of two million people since then.
The cabinet session was the first in Gaza since 2014, Hamdallah told his ministers, and a major step in a reconciliation process promoted by neighboring Egypt and other US-allied Arab countries.
Israeli Prime Minister Benjamin Netanyahu, meeting legislators from his right-wing Likud party, said the Palestinians were engaging in “fictitious reconciliations” and he referred to Iranian funding for Hamas, which has fought three wars with Israel since 2008.
“The way we see it is very simple: Recognize the State of Israel, dismantle the Hamas military wing, cut the ties to Iran, which calls for our destruction,” he said in remarks broadcast on Army Radio.
Abbas told Egyptian TV station CBC on Monday there could be only ”one state, one regime, one law and one weapon” in the Gaza Strip, reiterating a long-held position that security should be in the hands of only the Palestinian Authority (PA), which he heads, and that the PA must control border crossing points.
Both Israel and Egypt - whose intelligence chief arrived in Gaza to meet Hamas leaders, Hamdallah and officials from other Palestinian factions - maintain a partial blockade of Gaza, citing security concerns.
The Palestinian premier arrived in Gaza on Monday with armed guards and an entourage of West Bank officials to a hero's welcome from about 2,000 people.
"The only way to statehood is through unity," Hamdallah told the crowd. "We are coming to Gaza again to deepen the reconciliation and end the split."
He also said the reconciliation will require "hard efforts, time, patience, and wisdom."
Huge posters of Egyptian President Abdul Fattah al-Sisi, who brokered the reconciliation effort, were featured outside Abbas' residence as Hamas policemen were deployed all around.
Egyptian intelligence chief Khaled Fawzy was set to visit Gaza later on Tuesday for meetings with both sides and carrying a letter from Sisi. It would mark the highest ranking Egyptian official to visit Gaza since 2007.
Hamdallah's ministers are expected to begin taking over government ministries after Tuesday's meeting, with negotiations in Cairo on more difficult issues in the coming weeks.