Israeli and Palestinian officials have agreed on the handover of the West Bank town of Tulkarm after days of talks.
Tulkarm is one of five cities to be handed over to Palestinian control
The Palestinians said preparations for the transfer of security control from the Israelis would begin immediately.
Israel agreed last month to hand security control of five occupied towns back to the Palestinian Authority.
It withdrew its troops from the first one, Jericho, last week. Ramallah, Bethlehem and Qalqilya are also due to be handed over.
Israel promised to hand over the five towns at the Sharm al-Sheikh summit in February, but this was delayed by a suicide bombing.
The Tulkarm handover deal was confirmed after a compromise on the security arrangements for two nearby villages, which will remain under Israeli control pending further talks.
Israel says that the group that carried out last month's Tel Aviv attack operates from the villages.
Earlier, Israeli Defence Minister Shaul Mofaz said Israel would closely monitor the Palestinians' management of the territory under their control.
"It is very important for us to see how the Palestinians fulfil their commitments on everything in taking responsibility in West Bank towns," he said.
"In the first instance that means dealing with the wanted Palestinians, their ability to keep order, dismantle terrorist infrastructure and prevent attacks in the sectors where they have taken responsibility."
Palestinian factions agreed this week to extend an informal ceasefire with Israel.
But there were at least two shooting incidents on Sunday.
Three Israeli soldiers and a policeman were wounded by Palestinian gunmen in the al-Omri refugee camp near Ramallah.
Later, a Palestinian man was shot by Israel border police in Bethlehem.
Police said he had tried to steal a weapon from them.