0538 GMT January 20, 2019
Under the agreement, the West Bank-based Palestinian Authority is to resume full control of the Hamas-controlled Gaza Strip by December 1, according to a statement from Egypt's government.
Abbas welcomed the deal in comments to AFP and said he considered it a "final agreement to end the division" -- though many details remain to be resolved and previous reconciliation attempts have repeatedly failed.
It was signed in Cairo by new Hamas deputy leader Salah al-Aruri and Azzam al-Ahmad, the head of the Fatah delegation for the talks, at the headquarters of Egypt's intelligence service, which oversaw the negotiations.
In Israel's first reaction, a government official said Hamas must disarm and recognize Israel under the deal.
"Israel will study the developments on the ground and will act accordingly," the official said on condition of anonymity.
Negotiations are now expected to be held on forming a unity government, with the various Palestinian political movements invited to another meeting in Cairo on November 21.
An official from Abbas's Fatah movement said the Palestinian president was planning to soon travel to the Gaza Strip as part of the unity bid in what would be his first visit in at least a decade.
Sanctions taken by Abbas against Hamas-controlled Gaza will also soon be lifted, the Fatah official said.
The deal includes 3,000 members of the West Bank-based Palestinian Authority's police force redeploying to Gaza, a member of the negotiating team told AFP on condition of anonymity.
The figure is however a fraction of the more than 20,000 police officers employed separately by Hamas.
'End very shortly'
Also under the deal, Gaza's border crossings with Israel and Egypt will be handed back to the Palestinian Authority in the coming weeks, with a November 1 deadline, according to Ahmad.
The crossing with Egypt may require more time for the handover, with construction work currently underway there.
One of the key issues has been punitive measures taken by Abbas against Gaza in recent months, including reducing electricity payments that left the territory's residents with only a few hours of power a day.
"All the measures taken recently will end very shortly," Zakaria al-Agha, a senior Fatah leader in the Gaza Strip, told AFP.
The two sides began meeting in the Egyptian capital on Tuesday with the aim of ending the crippling decade-old split between the rival factions.
Hamas won election and took control of Gaza from Fatah in a near civil war in 2007 and the two factions have been at loggerheads ever since. Multiple previous reconciliation efforts have failed.
Egypt has been keen to improve security in the Sinai Peninsula which borders Gaza and where rebels have fought a long-running insurgency.
An Egyptian source close to the talks said intelligence chief Khaled Fawzi had followed the negotiations closely.
Fate of armed wing
Last month, Hamas agreed to cede civil power in Gaza to the Palestinian Authority but the fate of its vast military wing remains a significant issue for the two sides.
Hamas is blacklisted as a terrorist organiztion by the United States and the European Union.
It has fought three wars with Israel since 2008 and the blockaded Gaza Strip has seen deteriorating humanitarian conditions.
Faced with increasing siege and a severe electricity shortage, with harsh humanitarian consequences, Hamas has reached out to Cairo for help, hoping to have the Rafah border with Egypt opened.
The crossing has remained largely closed in recent years.
Egypt has also agreed to provide fuel to the Gaza Strip for electricity generation.
In return, Cairo pressed Hamas to move forward on reconciliation with Fatah.
Previous attempts at reconciliation have repeatedly failed, and many analysts are treating the latest bid with caution, waiting to see if actual change will occur on the ground.
Last week, Palestinian Authority Prime Minister Rami Hamdallah visited Gaza for the first time since 2015 and his ministers took formal control of government departments in the territory.
But the move was seen as mainly symbolic, with Hamas still effectively in charge in the Palestinian enclave of two million people bordered by Egypt, Israel and the Mediterranean Sea.
One of the key sticking points will be the fate of Hamas's 25,000-strong military wing, the Ezzedine al-Qassam Brigades.
Reconciliation could also pose a dilemma for international efforts to reach an Israeli-Palestinian peace deal since Hamas has not recognized Israel, unlike the Abbas-led Palestine Liberation Organization.