The Gaza Strip's Shejaia and Al-Ahly from Hebron in the Israeli-occupied West Bank will play in a fixture that appeared in doubt before the permit granted by Israel, whose territory separates Gaza and the West Bank.
The return leg in Hebron is scheduled for Aug. 9 and the winners of the Palestine Cup will play in the next Asian Football Confederation (AFC) Cup.
Prior to Al-Ahly's arrival in Gaza on Tuesday, Palestinian officials said Israel was blocking the team's entry. They had originally been expected to enter Gaza on Monday.
Gaza sports official Abdel-Salam Haniyeh said Israel appeared to have relented under international pressure and a complaint by the Palestine FA (PFA) to world football's governing body FIFA.
The Israeli office that oversees movement in and out of Gaza told Reuters that Al-Ahly's travel had been approved but did not comment whether there was a change of heart or a delay in issuing the team's travel permits.
Haniyeh said the match was a milestone for Palestinian football and could lead to unified competitions for Gaza and West Bank teams. Palestinians want the two territories to be part of a future independent state, together with East Jerusalem.
"This is an achievement for the Palestinian sports family and is a first step towards a unified Palestinian league and cup tournament," Haniyeh told Reuters at a lavish reception for the West Bank visitors at a Gaza hotel.
"I am full of honour and pride, this is the first time I have ever visited Gaza and I can't find the words to describe my feelings," Al-Ahly forward Khaldon al-Halman told Reuters.
Israel took all three territories in a 1967 war. It quit Gaza in 2005 but maintains a partial blockade of the territory ruled by the Islamist Hamas group. Hamas and Israel have fought three wars since 2008. A ceasefire has prevailed since August 2014 following a 50-day conflict.
At the annual FIFA Congress in May, Palestine threatened to call for a vote for Israel's suspension from world football but it dropped its motion at the last minute and FIFA agreed to send observers to monitor the situation.
The PFA has complained that Israel restricts the movement of players and officials to and from the Palestinian territories.
Israel cites security concerns for the restrictions, although it says it has eased travel recently.
(Writing by Nidal al-Mughrabi; Editing by Ori Lewis and Mark Heinrich)
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