Israel and Egypt have reached a deal that will allow key border crossings to the Gaza Strip to be re-opened, Israeli Defence Minister Shaul Mofaz has said.
Israel fears the Rafah crossing could be used to smuggle arms
The deal lets people travel between Egypt and Gaza using the crossing at Rafah, while goods will move through a terminal at Kerem Shalom, he said.
The US had earlier warned Israeli delays in re-opening Gaza's borders were harming the Palestinian economy.
Israel said it had to address security fears before easing access to Gaza.
Rafah is the only point where Palestinians can cross directly into the outside world without passing through Israel.
Israel had earlier said it would keep the Rafah border sealed for six months following the withdrawal of its soldiers and settlers from Gaza in September.
Palestinians argued that the Israeli occupation of Gaza would not end until it relinquished exclusive control of the territory's land and sea borders and its airspace.
Mr Mofaz said the new agreement will come into effect in a month's time.
Israel had adopted an Egyptian proposal on policing the Rafah crossing, Mr Mofaz said on Wednesday.
Condoleezza Rice said she hoped both sides would move faster
Speaking in Cairo after talks with Egyptian President Hosni Mubarak, Mr Mofaz said the deal means "passengers will be able to move from Gaza to Egypt and from Egypt to Gaza through the Rafah passage".
According to Israeli newspaper Haaretz, Egyptian and Palestinian authorities will now take control of the Rafah crossing.
Cross-border traffic will be screened on site by European monitors and remotely by Israeli surveillance cameras, the paper reported.
Goods and merchandise will meanwhile be allowed in and out of Gaza through a new terminal in Kerem Shalom, which lies at a crossroads between Israeli, Palestinian and Egyptian territory.
'Spur to both sides'
US Secretary of State Condoleezza Rice earlier called on Israel to speed up the opening of border crossings with Gaza, in order to improve economic prospects for Palestinians in the area.
She was speaking after international envoy James Wolfensohn accused Israel of holding up the process.
She said his comments should be taken as a spur to both sides to proceed faster.
"The crossings issue needs to get resolved: not just the Rafah crossings but the issues of freedom of movement within the West Bank and issues about other crossings that need to be freed up", she said.
Mr Wolfensohn, the former head of the World Bank and now an advocate for reconstruction in Gaza, wrote to the United Nations earlier in October to warn that Israel was dragging its feet on the question of border crossings.
Israel vacated Gaza in September after almost four decades of occupation, leaving it in Palestinian hands - although its borders remain largely under Israeli control.
Transit between Gaza and Israel is also severely circumscribed, leading to bottlenecks in the flow of goods in and out - and of people.
That, Mr Wolfensohn wrote, meant that economic revival was at risk - and with it, the hopes for a concrete and continuing peace process between Israel and the Palestinians.