Israeli Prime Minister Ariel Sharon welcomed the announcement.
"The arrangement reached in Cairo is a positive first step," Sharon said in a phone call to Egyptian President Hosni Mubarak, the host of the Palestinian conference.
However, some militant leaders put strict conditions on the extension of the truce, including the release of all Palestinian prisoners and the withdrawal of Israeli troops from Palestinian areas.
"What was agreed upon today is calm until the end of this year as a maximum period of time in exchange for an Israeli commitment to withdraw from cities and release prisoners," said Mohammed Nazzal, a leader in the militant group Hamas.
Nazzal further said that the end of the truce would be in the hands of the Palestinians and would depend on Israel's "adherence to the conditions."
Delegates from 13 Palestinian factions, including the militant groups Islamic Jihad, Hamas and the Fatah Party of Palestinian President Mahmoud Abbas signed Thursday's agreement.
The agreement strengthens the political position of Abbas who had reached an informal cease-fire agreement with Sharon in February. In that meeting Sharon agreed to some prisoner releases and a phased withdrawal of Israeli troops from some Palestinian areas.
Sharon aide Ranaan Gissin reportedly said that the Palestinian meetings in Cairo and Thursday's announcement were internal Palestinian issues, but Israel would comply with the February agreement it made with Abbas.
Gissin also said Israel would not deal directly with "terrorist" groups meeting in Cairo and said "the Palestinian Authority and its security services take real steps to dismantle the terrorist organizations."
Reports from the Cairo conference said the Palestinian militant groups are pressuring Abbas to allow them more sway in Palestinian affairs.