Israel's cabinet has approved in principle Prime Minister Ariel Sharon's plan to withdraw from the Gaza Strip.
Thousands marched in Jerusalem in support of the withdrawal plan
The cabinet voted 14 to seven to endorse the plan - but a fresh vote will be needed before Jewish settlements there are dismantled.
Despite this, Mr Sharon said afterwards that "disengagement has begun" and would be completed by the end of 2005.
In Washington, the Bush administration welcomed the move, describing it as "a courageous and historic step".
"We urge that practical preparatory work to implement the plan now proceed as rapidly as possible in Israel," a White House statement said.
The BBC's Barbara Plett says the revised plan has essentially deferred a political crisis without resolving it.
Ministers were bitterly split over the proposals.
Earlier, the Supreme Court ruled the vote could go ahead, despite a legal challenge after Mr Sharon sacked two ministers who opposed the plan.
The plan Mr Sharon initially proposed envisaged the withdrawal of all Israeli forces and settlements from the Gaza Strip - and the dismantlement of a small number of settlements in the West Bank - in one step.
It implicitly recognised that Israel would retain large parts of the West Bank - and some Palestinian refugees and their descendants who lost their homes when Israel was created would lose the right to return.
Pullout from all 21 settlements in Gaza and 4 in West Bank
Preparation period due to end by March 2005
Four-stage evacuation to be completed by end of 2005
Each stage requires cabinet vote
This plan was backed by US President George W Bush, and has popular Israeli support, but was rejected by members of Mr Sharon's own Likud party on 2 May.
Ministers have now voted to remove all 21 settlements in the Gaza Strip and four more in the West Bank in four stages to be completed by the end of 2005.
But each step would have to be voted on in advance and no announcement will be made on the evacuation of specific settlements until March 2005 - a big delay on the original timetable.
In the interim, a government commission will be established to plan for the eventual pullout.
After the vote, Mr Sharon said: "The government decided today that by the end of 2005, Israel will leave Gaza and four settlements in the West Bank."
But there is no guarantee it will happen, our correspondent in Jerusalem says.
The vote is not a green light to begin dismantling settlements, she says - that decision has been delayed until next year, and will depend on the circumstances at the time.
Rallies in support
Opinion polls show the Israeli public largely endorses the plan to withdraw from Gaza.
Thousands of people marched in Jerusalem on Saturday evening to offer their backing for the pull-out plan.
Protesters carried banners reading, "Get out of Gaza, start talking," and demanded an end to the veto right-wing settlers have wielded over the plan.
About 150,000 people attended a similar rally in Tel Aviv last month.
Tourism Minister Benny Elon and Transport Minister Avigdor Lieberman were sacked by Mr Sharon on Friday.
Mr Elon went into hiding before his dismissal could be delivered in an apparent attempt to challenge its validity and scupper Sunday's vote.
But the attorney general ruled that the dismissal was lawful and had come into effect, according to Israel TV.