Israel says its troops have left their positions in the northern tip of the Gaza Strip and returned to the Israeli side of the border.
Israeli troops launched operations after Cpl Shalit's capture
The withdrawal follows two days of intense fighting in the area, in which more than 30 Palestinians and one Israeli soldier have died.
Palestinian Prime Minister Ismail Haniya later called for a cease-fire.
He urged both sides to stop military operations, which began after Cpl Gilad Shalit was seized two weeks ago.
Israeli forces remain in southern Gaza, as well as east of Gaza City, where they clashed with gunmen on Saturday.
"In order to get out of the current crisis, it is necessary that all parties restore calm on the basis of mutually stopping all military operations," Mr Haniya said in a statement released by his office in Gaza.
His Hamas government also urged Israel to open negotiations over the fate of Cpl Shalit, the Associated Press news agency reported.
But an Israeli government spokesman brushed aside the truce offer, saying Hamas must first release the soldier and halt all rocket attacks on Israel, the Associated Press news agency reported.
The Israeli army says all of the forces that entered northern Gaza late on Wednesday have left the town of Beit Lahiya and are now back in Israel.
The BBC's Wyre Davies in Gaza City says the withdrawal is significant, because the areas has been the scene of heavy fighting.
Our correspondent adds that it is not clear why Israel has decided to leave now, but that it should ease tensions.
This leaves Israeli forces in the southern Gaza strip, as well east of Gaza City.
The latter area was the scene of the latest Israeli operation early on Saturday.
Troops, backed by helicopter gunships, moved on the eastern outskirts of Beit Hanoun and the main commercial crossing at Karni.
The area is a Hamas stronghold, and three Palestinians are reported to have died in the fighting.
Israeli military sources said this was a limited operation, aimed at uncovering tunnels under the border.
Earlier, Hamas confirmed for the first time that Cpl Shalit, 19, was alive and was being treated well and humanely.
Cpl Shalit was seized in a border raid on 25 June
The European Union accused Israel of using "disproportionate" force and of making a humanitarian crisis worse during operations in Gaza.
UN Secretary General Kofi Annan appealed to both sides "to pull back from the brink for the sake of all civilians in the region".
Palestinian President Mahmoud Abbas called both for militants to release Cpl Shalit and for Israel to free Palestinian prisoners.
"The world must stop this aggression and this inhumane invasion so that our [mediation] efforts can get somewhere," he said.
Israel's incursion into Gaza is its biggest military operation there since it ended its 38-year occupation nine months ago.