The Egyptian foreign ministry says both sides have agreed to the ceasefire to allow more time for negotiations.
Chief Palestinian negotiator Azzam al-Ahmed has confirmed the ceasefire.
"In the final minutes, it was agreed to extend the ceasefire for five more days. It will begin at midnight tonight and will end on Monday. Instead of 72 hours, it's 120 hours. The Palestinian delegation will leave for Ramallah tomorrow morning for consultations with President Mahmoud Abbas and with the Palestinian leadership."
Any success from three days of frantic shuttle diplomacy had appeared to be in jeopardy only an hour earlier when a rocket struck Israel.
But Mr Ahmed says peace talks are progressing, with agreement on several points over lifting the eight-year Israeli blockade of Gaza, a key demand from the Palestinian side.
"In the coming weeks, we hope to be able to reach a final agreement and that this agreement will have full Arab, regional and international support."
He says the negotiators need more time to settle some remaining disputes.
The announcement followed news that an Italian journalist, his Palestinian translator and several others were killed when an unexploded missile went off near them in Gaza.
The Associated Press's Gary Pruitt says the incident happened in a town in northern Gaza that previously endured intense fighting.
"An unexploded missile went off near them and tragically killed them both. Long-time video journalist Simone Camilli and translator Ali Shehda Abu Afash were killed in the explosion. AP photographer Hatem Moussa was seriously injured."
Meanwhile, Israel's Prime Minister Binyamin Netanyahu has denounced a newly established United Nations commission.
The commission has been set up to look into possible human rights violations and war crimes during Israel's military offensive in the Gaza Strip.
The United Nations announced the new commission will investigate possible abuses committed by both sides.
But Mr Netanyahu says Hamas and other organisations in the Middle East should be investigated, not Israel.
"The UN Human Rights Council legitimises murderous terrorist organisations like Hamas and ISIS.** Instead of investigating its attacks against Israeli civilians and its use of Gaza residents as human shields, instead of investigating (Bashar) Assad's massacre of Syrian citizens or ISIS massacres of the Kurds, the UN decides to come and investigate Israel, the only democracy in the Middle East."
Hamas has welcomed the creation of the commission.
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