Caretaker West Bank Prime Minister Salam Fayyad on Wednesday welcomed a surprise unity accord between Fatah and Hamas but stressed the deal must be implemented on the ground immediately.

His words were echoed by fellow Third Way party member and PLO leader Hanan Ashrawi, who said the move "reinforces today’s pursuit of democracy in the Middle East, and marks an important step towards Palestinian statehood and lasting peace."

Fayyad was equally optimistic, saying "Against the backdrop of a failed 'peace process,' reconciliation also injects a new sense of confidence and renewal in the Palestinian struggle for freedom and self-determination, beginning with an end to Israel’s occupation. It offers both Palestinians and the international community an opportunity to build momentum towards peace leading up to September.

"It's a very happy moment, the signing of the the agreement by the Palestinian factions," he told reporters in the West Bank town of Ramallah of the deal, under which an interim government of independents is to be selected paving the way for elections in a year's time.

But he acknowledged that the deal was only "a first step."

"We've been waiting a long time for this to happen because the unity of the nation is one of the basic issues" to prepare for a Palestinian state, the premier said.

Fayyad said the world would be watching the results of the agreement and it was key that both sides began to implement its terms straight away.

"All the world will see that the Palestinian Authority is going forward in one direction and this issue is very important," he said. "It's very important now to begin immediately to have a procedure on the ground."

The US State Department said on Tuesday that Secretary of State Hillary Clinton has called both Fayyad and Israeli Prime Minister Benjamin Netanyahu to discuss the reconciliation deal.

But a State Department official, speaking on condition of anonymity, said Clinton had not threatened to cut off aid to any new Palestinian government.

Yasser Abed Rabbo, a senior Palestinian official, on Wednesday said Clinton's phone call largely concerned Israel's decision to withhold its transfer of Palestinian tax revenues in the wake of the unity deal.

"If things move in the right direction, we believe there won't be any justification for any international party to take a negative position against the reconciliation," he told Palestinian radio.

"Our peaceful struggle to end the occupation will continue, so I cannot see why the United States or any other international party would take punitive measures against the Palestinian Authority and the Palestine Liberation Organization."