The two main Palestinian factions, Fatah and Hamas, have announced a reconciliation deal, saying they will try to form a unity government in the coming weeks.
Hamas and Fatah split violently in 2007, and have since divided their people between two sets of rulers.
It remains unclear how this plan would succeed where past attempts have repeatedly failed. It also adds new complications to U.S. efforts to broker a peace deal between Israel and the Palestinians.
Both the U.S. and Israel condemned the agreement.
Israeli Prime Minister Benjamin Netanyahu said Palestinian Authority President Mahmoud Abbas will have to choose between peace with Israel and peace with Hamas, which he called "a murderous terror organization that calls for the destruction of Israel." After the announcement, Mr. Netanyahu said Mr. Abbas has "chosen Hamas and not peace."
Israel, the U.S. and the European Union consider Hamas a terrorist group.
In Washington, State Department spokeswoman Jen Psaki said Washington is "disappointed" by the announcement, and she warned it could seriously complicate peace efforts.
She said "It's hard to see how Israel can be expected to negotiate with a government that does not believe in its right to exist."
Adding to the tensions, an Israeli air strike hit the northern Gaza Strip soon after the reconciliation announcement. A Palestinian official said the strike wounded 12 people, all of them civilians.