Israel has decided to leave the Gaza Strip without demolishing more than 20 synagogues at evacuated settlements.
The issue of Gaza's synagogues has been a sensitive one
Ministers decided to leave them intact after rabbis argued demolition went against Jewish ritual law. The move has been condemned by Palestinians.
Israel declared an end to military rule after a 38-year occupation and lowered its flag over Gaza in a ceremony. Its last troops may be out by early Monday.
A handover ceremony was called off when Palestinians announced a boycott.
The pullout was also marked by incidents of unrest on Sunday.
A 12-year-old Palestinian boy celebrating the handover was wounded by tank fire while climbing a fence near the Gush Katif settlements, Palestinian medical officials said.
And suspected Palestinian militants of the Abu Rish group fired on media cars in the southern town of Khan Yunis after threatening to abduct foreign journalists covering the handover.
Israel has already removed its settlers from Gaza, bulldozed their homes and demolished its military bases.
On Sunday, an Israeli military source said its remaining troops were in armoured vehicles "just waiting for the okay to leave".
Hundreds of Palestinians were said to be gathering around the empty settlement blocs waiting to see the last Israeli troops pull out.
However, the question over the fate of the synagogues had been a difficult one for Ariel Sharon's government, says the BBC's Lucy Williamson in Jerusalem.
Ministers had initially sought to raze the synagogues to prevent possible desecration by Palestinians.
The Palestinian authorities are preparing to take control
But they decided against it after pressure from leading rabbis.
The Palestinian Authority reacted angrily to the decision.
"Israel must dismantle these synagogues as they are part of the settlements," said authority spokesman, Nabil Abu Rudeina.
"Their retention risks provoking friction between the Palestinians and Israel in the future."
The authority boycotted a planned joint handover ceremony on Sunday.
Its officials said there was also a lack of agreement on key issues such as control of a crossing between Gaza and Egypt's border.
Israel's plans to retain control of movement into and out of the border area at least in the coming months - citing concerns at Palestinian abilities to prevent arms smuggling to militants - has angered Palestinian officials.
The Palestinian Authority says it will continue to insist on total freedom of movement between Gaza and Egypt - otherwise, it adds, the Israeli occupation of Gaza will not have really ended.