By Noel Mwakugu
BBC News, Nairobi
The handshake finally came after a month of talks
Many Kenyans had feared the imminent outbreak of renewed violence when peace talks were suspended on Monday but instead there is now fresh hope after the two rival leaders agreed to share power.
Both President Mwai Kibaki and opposition leader Raila Odinga gave ground under massive international pressure and the intervention of African Union Chairman and Tanzanian President Jakaya Kikwete.
They unveiled a deal that is intended to steer the country towards much-needed reconciliation after allegations of rigging in last December's elections.
However, as chief mediator Kofi Annan said: "The journey is far from over. In fact it is only beginning."
A peaceful destination will only be reached only if Mr Kibaki and Mr Odinga show the political will.
After such a bitter dispute, which has cost 1,500 lives, trust between the two men has been in short supply - this is why it took more than a month of tortuous talks for them to reach a deal.
This will not be the first time that the two leaders have formed a joint government - they did it in 2002 but it lasted barely three years before they fell out.
While Mr Odinga looks set to take up the new post of prime minister, it is not clear who prevails in the event of a disagreement between him and President Kibaki.
New two-party coalition government to be set up
Cabinet posts to be divided equally between the two parties
Raila Odinga to take new post of prime minister, can only be dismissed by National Assembly
Two new deputy PMs to be appointed, one from each member of coalition
If the deal is strong enough to overcome that hurdle, the new optimism will prove well-founded.
All eyes in a country that has been mourning for the past two months now turn to parliament, where MPs convene next Thursday to vote for the National Accord and Reconciliation Act that will usher in these changes.
The first challenge facing the two leaders once the act is operational is to appoint a new cabinet, whose members will be shared out equally.
The violence has left deep ethnic divisions and a new cabinet must be named with a regional balance to appease communities that felt left out in the last administration.
Apart from the regional balance, Kenyans are eager to see the parties merge their policies and deliver an equal share of national resources.
Kofi Annan hailed the deal but said there was more work to be done
Economic disparities lie behind much of the ethnic tension which exploded into violence after the disputed election.
One major policy difference is that of decentralising power and therefore wealth.
This was a key campaign pledge of Mr Odinga's Orange Democratic Movement (ODM) but not Mr Kibaki's Party of National Unity (PNU).
The coalition partners now have to marry these and other areas of disagreement.
President Kibaki is credited with steering economic growth in his first term in office but corruption thrived within his administration, drawing much criticism from foreign diplomats.
This is yet another hurdle for the new coalition - both sides include people linked with corruption scandals in the past.
Many doubt if the leaders will have the courage to sacrifice them and inject fresh blood into the administration since it is clear some of those tainted by scandal helped fund the campaigns and remain very influential.
The talks which gave birth to this new power-sharing arrangement have brought to the fore the influence of hardliners on both sides.
Odinga supporters took to the streets as the deal was announced
While Mr Kibaki and Mr Odinga may have shaken hands and exchanged pleasantries, observers are sceptical as to whether they will ignore the advice of some of their hardline backers.
But failure to contain their influence may endanger the new coalition.
The power-sharing agreement ends if either partner walks out and this would throw the country back into another phase of uncertainty.
Some argue that the new deal could produce a new breed of leader who would be respected for their political principles and not the wealth they possess, as at present.
But as Tanzanian President Jakaya Kikwete squarely put at the signing ceremony, it is the political will of the two leaders that remains central if this promise is to become a reality.