Hamas, which governs Gaza, has allowed the West Bank political party, Fatah, to celebrate its 48th anniversary by staging a rally in Gaza City for the first time since its forces were ousted following a brutal civil war.
Supporters carrying the distinctive black and yellow flags of late Palestinian president Yasser Arafat's group arrived on Friday in a steady stream to the venue.
Many Palestinians living outside of Gaza City arrived overnight, lighting fires and starting the celebrations early. Cars cruised the streets with waving Fatah and Palestinian flags.
Palestinian President Mahmoud Abbas last month allowed Hamas supporters to celebrate their movement's founding in a rare rally in the West Bank.
The moves appear to be an attempt by the two sides to mend relations after years of division and mistrust.
After decades of dominance, Fatah lost a 2006 parliamentary election to Hamas, the largest Palestinian armed group.
Following the democratic election results, the US and Israel labelled Hamas a "terrorist organisation" and Fatah became the Western-backed political party ruling the West Bank.
A year after the election, Fatah's forces were routed by Hamas in a civil war and ousted from the Gaza Strip.
Fatah's power in the West Bank has been reduced by persistent internal struggles and its influence has waned. Fatah, the mainstream Palestinian nationalist movement, was founded in 1965 by Arafat.
It is a secular party and the largest of the various factions that make up the Palestinian Liberation Organisation (PLO).
The January 1 anniversary commemorates the first operation against Israel claimed by PLO's armed wing then known as al-Assifa in 1965.
Fatah originally backed armed struggle to create a Palestinian state but later led peacemaking efforts with Israel for a deal to create a state in the West Bank and Gaza Strip, with East Jerusalem as its capital.