Palestinians planted flags on the rubble of Jewish settlements and set synagogues ablaze as Israeli troops pulled out of the Gaza Strip after 38 years of occupation.
"This is a day of happiness and joy that the Palestinian people have not witnessed for a century," Mahmoud Abbas, Palestinian president, told reporters in Gaza City.
Thousands of Palestinian security men waving victory signs took over while Israeli tanks and armoured vehicles moved out under cover of darkness, Telegraph reports.
Ariel Sharon, the Israeli prime minister, had originally supported the demolition of the synagogues but, to woo important the Right wing rabbis he will need in forthcoming elections, he changed his mind and led a cabinet vote not to destroy them.
Palestinians immediately took torches and hammers to the buildings.
Saeb Erekat, the chief Palestinian negotiator, said Israel deliberately wanted to put the Palestinians in an awkward position by foisting responsibility for the preservation of the Jewish religious buildings on them.
Israel's disengagement from 21 settlements in Gaza and four in the West Bank has won Mr Sharon international accolades and Washington hopes it will revive peacemaking.
But the removal of Gaza's 8,500 settlers - often amid scenes of violence - has angered the religious Right wing and led to a rift in the coalition government.
Also Israel, citing security reasons, will continue to control Gaza's border crossings, air space and waters.
Celebrating Palestinians chanted "Allahu Akhbar" (God is greatest) and held up pictures of militants killed in an uprising. Some kissed the ground. Others scampered down to pristine beaches they could not reach for years.
An Israeli army spokesman said 179 members of the Israeli security forces had been killed defending the Gaza settlements since 1967. Scores of Israeli civilians also died.