Israel has begun withdrawing troops in the West Bank, though the handover was held up briefly when the Palestinians raised questions about last minute Israeli changes in the redeployment map.
After meeting with the Israeli troop commander in the West Bank, Palestinian leader Yasser Arafat said the problem was resolved.
Once completed, the pullback would give Arafat full or partial control of an additional 9-point-1 per cent of the West Bank and take him a step closer to his final goal of statehood.
And while Palestinians celebrated in the streets across the West Bank, Israeli settlers expressed fears their security would be compromised.
After years of wrangling, the official handover of the first part of the West Bank began on Friday with a handshake.
The Israeli troop withdrawal was held up for about two hours earlier today (on Friday) because the Palestinians raised questions about last minute Israeli changes in the redeployment map.
The Israeli troop commander in the West Bank, Major General Moshe Yaalon, was called in to meet with Arafat and reviewed the maps.
Later, a tired but triumphant-looking Arafat emerged from the meeting and said the problem was resolved.
That set off celebrations by Palestinians across the West Bank, who have waited through two years of U-S led negotiations and bitter disputes, in the wake of the Oslo Accord, for today's withdrawal.
Many simply sat and listened to the news, seemingly not believing it was happening.
"We're very happy, all the people are happy."
SUPER CAPTION: Vox Pop, Kabatia Resident
The Israeli cabinet gave the final go-ahead on Thursday to withdrawing troops from a chunk of the West Bank the size of Chicago.
Today the new borders were being laid out, and control of the borders handed over.
No army bases or Jewish settlements will be dismantled in the withdrawal, and the Israeli commander in the West bank insisted on Friday that Jewish settlers in the area will still be protected.
"We shall continue to give security and all the things needed to keep the regular life of the Israeli citizens in this area."
SUPER CAPTION: Yitzhak Eitan, Head of Israeli Troops in West Bank
But in the Jewish settlement of Ganim, located in the heart of the area handed over, the streets were deserted on Friday as news of the pullout was greeted with alarm.
"I can not trust the Palestinian police to keep my security. I can only trust my army and I can only trust my police, but not the Palestinian police. They are not part of my people. They are not my .... I have no connection to them."
SUPER CAPTION: Jewish Settler
The Israeli withdrawal has been deeply unpopular with Jewish hardliners, and that has increased pressure on Prime Minister Benjamin Netanyahu.
And as fresh border posts were being set up to demarcate the new borders between Israeli- and Palestinian-controlled areas, Netanyahu was facing mounting challenges from hawkish allies who have threatened to topple his government.
As a result, he's reportedly considering early elections.
In addition to the troop pullouts and the prisoner handover, the Palestinians will finally get their own airport.
In Tel Aviv on Friday, Palestinian officials met their Israeli counterparts to sign the protocol that will enable the opening.
"I consider that is very important for the Palestinians as human beings to have this right to depart from their own airport very easily very quickly and to be connected to other airports in the area, as in the world, as in any human being in the world."
SUPER CAPTION: Fayez Zaidan, Head of Palestinian Civil Aviation Authority
The airport in Gaza has been nearly completed for months.
Now - with just two days to go before the opening - the finishing touches are being made, paving the way for future visitors to Palestinian territory to avoid passing through Israel.
Friday evening, as Palestinian ministers gathered in Hebron for a cabinet meeting, one warned against future Israeli moves that could delay the process ahead.
"We really urge the Israeli government now, since we are about to resume the permanent status negotiations next week, that they will refrain from any unilateral steps that may preempt the permanent status talks especially settlements, confiscation of land, aborting of trade."
SUPERCAPTION: Saeb Erikat, Palestinian Cabinet Minister
Palestinian officials already have complained about which prisoners the Israelis released under another part of the interim peace deal.
The majority of those given their freedom today were common criminals, rather than those jailed for fighting Israeli occupation as the Palestinians requested.