Israeli tanks and troops pulled back from around Palestinian President Yasser Arafat's headquarters after a siege lasting nearly three days and withdrew from the West Bank city of Ramallah.
The army's withdrawal yesterday evening, as Israeli Prime Minister Mr Ariel Sharon held talks with British Prime Minister Mr Tony Blair in London, ended a tense standoff and could help boost diplomatic efforts to end more than 20 months of conflict.
People emerged from their homes where they had been kept under curfew and dozens of President Arafat's guards marched through his presidential compound, shaking their assault rifles in the air and chanting slogans in support of President Arafat.
"We will give up our lives for you," they said as other supporters came to the compound carrying Palestinian flags.
Outside President Arafat's office, Palestinian bulldozers removed piles of rubble used by the army to block entrances to the headquarters, which was badly damaged in an earlier five-week siege which the army lifted on May 1st.
Tanks had encircled President Arafat's battered compound on Monday but not entered it during a raid the army said was intended to seek out militants blamed for suicide bombings against Israelis in the 20-month-old uprising against Israeli occupation.
Tanks and armored vehicles retreated from positions across Ramallah and left, taking up positions outside the city and keeping it encircled, military sources said.
"The situation in Ramallah seems to be returning to normality," European Union Middle East envoy Mr Miguel Angel Moratinos told reporters as he went into talks with President Arafat after the tanks pulled back. President Arafat was smiling and looked well.
The army said it had arrested about 75 Palestinians and confiscated many weapons in Ramallah since Monday. Defense Minister Mr Binyamin Ben-Eliezer said the results were "quite impressive."
A senior Palestinian official said the Palestinian cabinet hoped to meet in Ramallah today for the first time since President Arafat announced a reshuffle on Sunday as part of the reforms demanded by the United States and Israel.
The Israeli raid prevented the cabinet meeting on Monday.