The move is likely to help Palestinian President Mahmoud Abbas convince militants to agree to a cease-fire so he can proceed with peace talks with Israel.
Israeli soldiers lowered their national flag and dismantled one of three checkpoints surrounding Jericho, helping ease travel restrictions to other towns in the region, as well as Ramallah, the hub of Palestinian government and commerce in the central West Bank, Reuters reported.
The handover was sealed with a handshake between Israeli and Palestinian security commanders on the edge of town.
Jericho is the first of five West Bank towns to revert to Palestinian control in coming weeks -- an agreement reached at a Feb. 8 summit between Abbas and Israeli Prime Minister Ariel Sharon.
Israeli travel restrictions have hampered daily life in the West Bank and Gaza Strip in more than four years of fighting, and the removal of one checkpoint sends a message to Palestinians that an informal truce with Israel is starting to pay off.
Israel set up the barriers across the West Bank to prevent Palestinian suicide bombers and gunmen from reaching Israeli targets.
Some Palestinians expressed dissatisfaction with Wednesday's developments.
"A prisoner living in a cell will always be very glad when the guards open a window," said Issa Saasine, a plastics trader visiting Jericho from the West Bank city of Hebron, according to the Associated Press. "Any small improvement is welcome, but more is needed to bring about confidence and stability."
But Palestinian negotiator Saeb Erekat, a resident of Jericho, said the handover of the town is the first step in returning the area to the way it was before the outbreak of violence in September 2000.
"The point is we are trying to get things back gradually, hoping that through peace and negotiations things will change," he said, reported the AP.