A deal has been reached to reopen the main Rafah crossing in 10 days time from the Gaza Strip into Egypt.
Rice had postponed a flight to Asia to throw her personal prestige into an effort to win a much-needed victory for the moribund Middle East peace process.
The round the clock talks were also mediated by EU foreign policy chief Javier Solana and former World Bank chief James Wolfensohn.
"It is the first time that the Palestinians are going to control an international border with the external world. This is also the first time that Israel accepts a European involvement in security matters," said Solana.
The Palestinian Authority welcomed the deal as important towards improving the life of the impoverished territory's 1.3 million residents, triumphant that Israel would no longer control the crossing.
Israel agreed to allow convoys to facilitate the movement of goods and people between Gaza and the West Bank.
Rice cautioned the agreement was fragile, as are prospects for reigniting talks to end more than five years of violence that have left nearly 5,000 people dead.
On Tuesday, Rice met Defence Minister Shaul Mofaz as part of a last push for Israel to accept the proposed deal and held final talks with Palestinian civil affairs minister Mohammed Dahlan and finance minister Salam Fayad.
"It was agreed that Israel does not have the right to prevent any Palestinian citizen from crossing the Rafah terminal after it reopens," Dahlan said in a statement.
The Israeli foreign ministry has called on the Palestinians to act to prevent armed groups from torpedoing the deal.
"Our hope is that we will be able to build a level of cooperation with the Palestinians that will lead to bigger and better things in the future," said foreign ministry spokesperson Mark Regev
Kofi Annan welcomes Gaza deal
The UN Secretary General has welcomed the landmark agreement, saying it will improve the Palestinians’ economic prosperity and their freedom of movmenent.
Annan, who is in Tunisia for a world summit on the Information Society, expressed his appreciation to Rice and Wolfensohn for their efforts in brokering the deal, and thanked the
European Union for its proposed technical assistance in its implementation.