Officials have described the talks, taking place via videophone, as a last chance to prevent factional clashes in the Gaza Strip from intensifying further.
The talks are expected to focus on the joint goal of Palestinian independence, as well as address the effects of the financial freeze placed on the Hamas-led government by foreign donors.
Apart from Fatah and Hamas, representatives from a dozen other Palestinian factions, city mayors, religious leaders, academics and representatives of civil society are taking part in the two days of scheduled talks.
At least 10 Palestinians have been killed in recent inter-factional unrest in Gaza pitting Fatah-dominated security officers against loyalists of the new Hamas-led government, including two on Wednesday.
The meeting comes on the heels of Israeli Prime Minister Ehud Olmert's visit to the United States, where he asked for dialogue with the Palestinians.
Calls for calm
Palestinian Authority president Mahmoud Abbas, whose once ruling Fatah party has become increasingly ensnared in deadly gunfights with loyalists of the new Hamas government, is chairing the talks from the West Bank town of Ramallah.
Hamas prime minister Ismail Haniya is taking part via videophone from Gaza City, owing to Israeli travel restrictions.
Fatah and Hamas both issued appeals for calm on the eve of the meeting.
"We are in agreement on sending messages to the Palestinian people and the sons of Hamas and Fatah appealing for calm and restraint," said Mr Haniya.
Deadly shootings and assassination attempts against two Fatah security chiefs have elicited repeated calls from leaders on both sides to avoid a descent into civil war, as each blames the other for sparking the troubles.
"The entire world is aware that our national cause is in danger and we should therefore work for the success of this dialogue," Mr Abbas told reporters.
"This national dialogue must succeed. The government is committed to finding an agreement with all factions," Mr Haniya told a weekly cabinet meeting.
Tensions between Fatah and Hamas have been exacerbated by the serious financial crisis facing the Palestinian Authority, after Western donors suspended direct aid after Hamas was voted into government.
Crucial differences also exist over how to address the Middle East conflict, with Fatah advocating negotiations with Israel -- not recognised by Hamas -- and the Islamists adhering to armed struggle to throw off occupation.
Fatah is likely to ask Hamas to recognise a peace plan adopted by the Arab League in 2002, which would entail implicit recognition of Israel, as a means to alleviate the international boycott of the Palestinians.