Palestinians today celebrated a coalition deal between Hamas and Fatah to end factional warfare, but international reaction was cautious.
Gaza residents crowded into streets which just a week ago saw bloody battles between rival gunmen, hoping the accord would succeed where others had failed.
Palestinian Hamas supporters attend a Hamas rally against Israeli excavations near the al-Aqsa mosque compound, in Gaza today
Israel insisted that the new unity government must not follow Hamas's refusal to recognise the Jewish state one of the reasons for economic sanctions crippling an already impoverished economy.
"I bought sweets, even though I needed the money for something else, but I am optimistic that after the agreement the siege will be lifted and we will be paid regularly," said 26-year-old government employee Ahmed Yusri.
However, there was a muted international reaction to the accord sealed in Saudi Arabia between Palestinian President Mahmoud Abbas and Hamas chief Khaled Meshaal late yesterday.
The US, which spearheaded the economic sanctions, was silent but some European states reacted more positively.
The agreement made no mention of recognising Israel, a requirement laid down by the Quartet of Middle East peacemakers for the lifting of sanctions imposed on the Palestinian Authority after Hamas trounced Fatah in elections last year.
However a letter from Mr Abbas, re-appointing Ismail Haniyeh of Hamas as prime minister, called on Hamas to "abide by the interests of the Palestinian people", and linked that to previous Palestine Liberation Organisation decisions.
Palestinian analyst Hani Habib said both Fatah and Hamas had been forced to make concessions by two months of violence in which 90 Palestinians have been killed.
Mr Abbas's reference to existing Palestinian and Arab accords was significant, he added.
"These decisions clearly imply a recognition [of Israel]."
But Israel's Yedioth Ahronothnewspaper said: "Hamas did not relinquish power, abandon its ideology, did not recognise Israel, did not renounce terror and did not agree to abide by signed agreements."
The European Union, which along with the United States, United Nations and Russia make up the Quartet, said it would study the Mecca deal "in a positive but cautious manner".
France welcomed the agreement and said the international community should back the new government. Britain described the accord as "interesting".