Rival Palestinian political factions Hamas and Fatah announced Wednesday that they have reached a potentially historic agreement to form a unity government that would revitalize the Palestine Liberation Organization (PLO) and set the stage for new elections in the occupied territories. If implemented, the deal would represent a break by Palestinian Authority President Mahmoud Abbas from U.S. tutelage, and would likely end Secretary of State John Kerry’s hopes of keeping alive his faltering efforts to renew negotiations between Israel and the PLO.

Israel immediately called off the next round of talks in response to the deal.

Wednesday’s announcement included plans to form a provisional government within five weeks for the West Bank and Gaza staffed by technocrats, to prepare the way for elections six months after that.

“It is a great honor to me personally to have this agreement reached,” said Ismail Haniyeh, the Hamas-backed prime minister in Gaza. Hamas won the last Palestinian legislative elections, but Abbas’ Fatah movement sought to prevent it from taking power — and a power struggle in Gaza in 2007 led to the violent ejection of Fatah forces from the territory. Since then, the territories ostensibly ruled by the Palestinian Authority have been split between Hamas-controlled Gaza and the Fatah-controlled West Bank. No new elections have been held in eight years.

Azzam Al-Ahmed, the Fatah negotiator, expressed optimism at the outcome of negotiations with rival factions.

“We are reunited. We extend all appreciation and thanks to our brother Ismail Haniyeh for the significant role he has played during the two meetings over the last two days,” said Al-Ahmed.

This week’s negotiations represent the first meeting in the Gaza Strip since 2007.

The two sides met and signed deals in 2011 and 2012 in meetings in Cairo and Doha — but never with the desired result of unification. The new agreement, reached in only two days, will honor the terms of those agreements.

The implications of a reunified Palestinian polity for negotiations with Israel are not clear. Hamas has long opposed the U.S.-led negotiations in which Abbas has participated, and the U.S. and Israel have supported a strategy of isolating Hamas and blockading its Gaza stronghold. Unable to secure Palestinian goals in the Kerry talks, however, Abbas has lately threatened to walk away from the process and collapse the Palestinian Authority — which had been established two decades ago as an interim administrative body to prepare the way for Palestinian statehood. Reconciliation with Hamas has clearly riled the Israelis, who refuse to negotiate with the movement, deemed a terrorist organization by the U.S. and European Union.

"Does he [Abbas] want peace with Hamas or peace with Israel?" Israeli Prime Minister Benjamin Netanyahu said Tuesday in remarks to reporters. "You can have one but not the other. I hope he chooses peace. So far he hasn't done so."

A senior Obama administration official told Al Jazeera, “We have been clear about the principles that must guide a Palestinian government in order for it to play a constructive role in achieving peace and building an independent Palestinian state. Any Palestinian government must unambiguously and explicitly commit to nonviolence, recognition of the State of Israel, and acceptance of previous agreements and obligations between the parties.”

The official added, “If a new Palestinian government is formed, we will assess it based on its adherence to the stipulations above, its policies and actions, and will determine any implications for our assistance based on U.S. law.”

It remains unclear what attitude any Palestinian unity government would take toward negotiations with Israel. Those negotiations are conducted under the auspices of the PLO, which would be reconstructed under the agreement to potentially include Hamas and Islamic Jihad, which have opposed the peace process in which the PLO has been engaged for the past 20 years.

Abbas’ spokesman, Nabil Abu Rudeineh, said Palestinian unity was an internal matter. "Abbas chooses peace and the unity of the Palestinian people," he said. "The choice of unifying the Palestinian people enforces peace, and there is no contradiction whatsoever between reconciliation and negotiations."

Yousef Munnayer, executive director of The Jerusalem Fund, a Palestinian advocacy group, told Al Jazeera that attempts at reconciliation would face hurdles.

"Unity is in the interest of the Palestinian people. There is no doubt that a more unified Palestinian front is stronger than a divided one," said Munnayer.

"Predictably, the Israelis, who generally feast on the weakness of Palestinians and attempt to bully them through pointless negotiations, are irate over any Palestinian attempts to reject Israeli-imposed division,” he added. “Tel Aviv and their friends in Washington will now attempt, as they have before, to scuttle any Palestinian reconciliation agreement."

Some Palestinians, weathered by divisions in the past, told Al Jazeera they remained skeptical of the new agreement. Ramallah resident Nur Hamad said she supported reconciliation "because we have to be one nation."

"No factions, only a Palestinian nation, but I don't think Fatah and Hamas are going to succeed," Hamad said.

Shortly after Wednesday’s announcement, Israel launched an air raid in the northern Gaza Strip, Reuters reported. The strike injured 12 people, some of them children as young as five, according to medical sources in Gaza and Israeli defense forces.

Wednesday's strike follows missiles Hamas lobbed across the border into Israel on Monday. That attack caused no injuries.

Al Jazeera and Reuters. Chris Sheridan and Wilson Dizard contributed to this report.