Israeli troops appear to have withdrawn completely from northern Gaza after a 16-day operation which saw the heaviest fighting there in four years.
Israel says its offensive has met its objectives
Soldiers and tanks moved back into Israel under cover of darkness in a matter of hours, witnesses said.
Troops were sent into Gaza to track down rocket teams targeting Israel, and more than 100 Palestinians died.
An official said the withdrawal was also a mark of respect for the start of the Muslim holy season of Ramadan.
Tanks withdrew from Jabaliya refugee camp and the towns of Beit Hanoun and Beit Lahiya, Palestinian witnesses said.
Militants have used the area to fire home-made Qassam rockets into Israel and attacks continued during the offensive.
The Israelis, who still have troops on the ground around the Gaza Strip, say they are ready to hit back in the event of new attacks.
A spokesman for the Palestinian group Hamas, Fathi Hammad, said the withdrawal marked a "victory" for the militants.
It became clear in recent days that the Israeli army felt its objectives had been achieved as far as possible and it was time to go, the BBC's Alan Johnston reports from Gaza.
At least a third of the dead during the operation were civilians, our correspondent says.
Four Palestinians were killed in northern Gaza on the final day of Israel's operation:
- An air strike killed three men near Jabaliya whom Israel said were part of a militant group trying to approach Israeli positions
A 70-year-old Palestinian woman in Jabaliya camp was killed by an Israeli bullet as she gathered with her family to break her religious fast after sunset, local people said
'Ready to return'
"The operation has met its objectives and the level of Qassam attacks has dropped considerably," Israeli Deputy Defence Minister Zeev Boim said on Friday.
Referring to Ramadan, he added: "We have no desire to make it difficult for the population."
A spokesman for Prime Minister Ariel Sharon told Reuters news agency that Israel would return if necessary.
"We will move in and act whenever we feel there is threat of rockets," said Raanan Gissin.
The United States welcomed news of the withdrawal.
"We have said that we hope the action in the northern Gaza Strip would end quickly," said state department spokesman Richard Boucher.
Gaza has been occupied by Israel since 1967.
About 1.4 million Palestinians live in Gaza, of which 900,000 are refugees from conflicts with Israel.
Mr Sharon is planning to withdraw both settlers and Israeli soldiers from Gaza.
Approximately 8,000 settlers from Gaza, and the troops who protect them, are expected to leave Gaza by the end of 2005, though Israel will maintain control of Gaza's borders, coastline and airspace.
In the West Bank, hundreds of extra police were drafted into Jerusalem to prevent possible outbreaks of violence during traditional Friday prayers in the al-Aqsa mosque compound on the first day of Ramadan.