A crowd of his supporters greeted him as he emerged in his wheelchair from his home in Gaza City.

Sheikh Yassin was placed under house arrest two months ago after the Israel and the Palestinian Authority signed their latest peace agreement.

A spokesman for Hamas welcomed the move but it has been criticised by Israel.

Correspondents say his release is likely to further heighten tensions between the two sides, who have accused each other of violating the accord.

Security clampdown

The Wye peace agreement requires the Palestinian Authority to crack down on militants and take other security steps in return for Israeli withdrawal from more of the West Bank.

Sheikh Yassin branded the Wye deal worthless before he was placed under house arrest

He said the security clampdown by the Palestinian Authority would not stop attacks on Israeli targets.

Israeli government spokesman Moshe Fogel: said: "The Palestinian Authority has to decide whether it wants to meet its commitments to fight Hamas terror and move the peace process forward or turn a blind eye to the terrorist activities of the Hamas leadership."

Sheikh Yassin, 62, was released from an Israeli jail in October 1997 in exchange for two agents from Israel's Mossad intelligence service.

While under house arrest wheelchair-bound Sheikh Yassin was prevented from receiving visitors.

The move, which deeply angered his supporters, was one strongest steps taken against Hamas by the Palestinian Authority.