However, Hamas negotiators have denied earlier reports that the deal meant the militants would implicitly recognise Israel - a major policy shift.
Palestinian minister Abdel Rahman Zeidan told the BBC the Hamas-Fatah document did not in any way recognise the state of Israel.
"There is no agreement between the Palestinians on specifically this phrase. You will not find one word in the document clearly stating the recognition of Israel as a state. Nobody has agreed to this. This was not on the table. This was not in the dialogue," he said.
However, a Hamas member who helped negotiate the agreement, Ziyad Dayeh, said Hamas support for a two-state solution was nothing new for Hamas.
"When talking about a Palestinian state in the occupied territories of 1967, it means there would be another state on the other part of Palestine. It means, yes, practically, a two-state solution, and it's not a new thing - it has been offered by Sheikh Ahmed Yassin before," he said.
Hamas and Fatah officials said all factions, except for the hardline Islamic Jihad, had approved the blueprint, drawn up by Palestinian prisoners being held in Israeli jails.
Ibrahim Abu Najja, head of a cross-party Palestinian grouping said, "With representatives of all Islamic and national forces, civil society and private sector representatives ... we have reached an agreement with changes (on some points)."
"That means Hamas accepts the principle of a solution (to the Israeli-Palestinian conflict) based on two states," an allusion to a Palestinian state being created alongside Israel, rather than in its place.
"This is good news for a united Palestinian society," the deputy speaker of the Palestinian parliament, Ahmed al-Bahar said.
Changes
As well as implicitly recognising Israel, the 18 point national reconciliation blueprint calls for an end to attacks in Israel and the creation of a national unity government, but there are some changes to the original document.
These changes reportedly concern the supremacy of the Palestine Liberation Organisation (PLO) which groups together major Palestinian factions, however neither Hamas or Islamic Jihad belong to or accept the supremacy of the PLO.
Other changes relate to negotiations with Israel, President Abbas’s exclusive responsibilities and the recognition of international agreements.
The document is now due to go before the Palestinian President Mahmud Abbas and the prime minister of the Hamas led government, Ismail Haniya on Tuesday.
If approved, it will mark a major shift in policy by Hamas, the organisation which calls for the destruction of Israel in its charter.
Document dismissed
The international community has repeatedly demanded that Hamas recognise Israel's right to exist, renounce violence and respect previous agreements signed by the Palestinians.
The United States has withheld comment on the document, saying it would wait until seeing the formal agreement.
But Israel has dismissed the historic agreement as an “internal matter.” Assi Shariv, Israeli Prime Minister Ehud Olmert's media advisor, told news agency AFP that, "The document has never been accepted by us and we still don't see in it any change."
An Israeli Foreign Ministry spokesman Mark Regev saying the recent kidnapping of an Israeli soldier, seized in a deadly ambush on Sunday, was the “only thing that interests us now.”
Palestinian armed groups have vowed not to release the 19-year-old until all Palestinian women and minors are freed from Israeli jails – a demand already ruled out by Israel.
Tensions continue
Israeli troops and armoured vehicles have already moved to Gaza’s border, preparing for a large scale military offensive which Prime Minister Olmert warns is approaching.
Palestinians living near the volatile border region have already started abandoning their homes fearing the assault.
Early Wednesday morning Israel launched multiple air strikes on the Gaza Strip, plunging the Gaza City into darkness by hitting the main power station, the attack triggering a fire.
It follows similar raids which destroyed two bridges and hit a road in the central Gaza Strip. No injuries were reported in either attack. Israeli public television has warned that the air operations could be the prelude to a major ground offensive.
One of Israel’s cabinet ministers has also warned that Israel could easily kidnap Hamas’s high profile members, "If we start with kidnappings, Israel has no problem entering the Gaza Strip and kidnapping half the Palestinian government," Benjamin Ben-Eliezer said.
Deputy Prime Minister Shimon Peres also levelled threats against Hamas's Damasus-based political head Khaled Meshaal, who famously survived a Mossad assassination attempt in 1997. Blaming Mr Meshaal for the attack, Mr Peres said, "We will take care of him."
Calls for calm
Amid the build-up of troops, international community has been calling for calm. US Secretary of State Condoleezza Rice urging Israel to give diplomacy a chance, saying there was a "concerted international effort" underway for the release of Corporal Gilad Shalit.
It’s a statement echoed by the EU foreign policy chief, Javier Solana, who also urged Israel to use political rather than military means to seek the soldier’s release.