Following clashes with the incumbent Fatah government, Hamas has since ruled the coastal enclave of 2 million people.
Reunification a decade after Islamist Hamas and secular Fatah battled for control of Gaza may hinge on whether complex issues related to power-sharing - which stalled reconciliation bids in the past - can be resolved.
There have been efforts to reconcile the warring factions several times in the last decade.
In 2011 and 2014, attempts to achieve a single ruling body over the West Bank and Gaza failed, and some hope this move can bring the first major thaw in an icy standoff.
Hamas' move now is a result of indirect talks between the factions mediated by Egypt, which has a border with Gaza.
Hamas spokesman Fawzi Bahroum describes the dissolution of its existing government as a difficult move that will ultimately benefit Palestinian people, who want unity.
"Now Hamas took a courageous, serious and patriotic decision to dissolve the administrative committee, but how would Fatah movement and the President of the Authority deal with this decision or with this Egyptian effort? We believe that Abu Mazen and Fatah have a new test of dealing with the Egyptian effort and of dealing with achieving the aspirations of our Palestinian people in finding a united Palestinian case, to become free to face all the challenges and most importantly facing the occupation and the settlements."
The move comes six years after the two factions declared a national reconciliation government, which tried - but failed - to form a joint leadership over the territories.
Fatah central committtee member Abbas Zaki has welcomed this latest decision.
"We do not want to give to any Arab or any international side to point at us that we are the obstacle for the acceptance of the Palestinian people and its decisions on all aspects because of the division or because we are the reason. We hope that we become like a school that the world can learn from, because it is a just cause and great people who need a responsible leadership which is in tune with people."
However, Palestinian civilians say the move by the Hamas leadership is based less on idealism than practicality.
Fatah's president Mahmoud Abbas has been limiting supplies of water and electricity to the area in a bid to motivate Hamas to relinquish control.
Now, for frustrated residents of Gaza City, including Diab Sukkar, politics are secondary to practicality.
"The street is not concerned about the Palestinian reconciliation. People's concern is one thing, why did the water stop? And why did the electricity cut? People are frustrated. The reconciliation does not matter to me as a Palestinian, because honestly, after suffering from this siege for 10 years and more, I started hoping that Fatah or Hamas never come back."
But other residents of Gaza City, such as Maher Abu Abaid, hope a unified region not at war with itself will be able to focus on greater outside threats.
"We hope that they become united and to have one opinion. Because the enemy is one enemy, the land is one, the President should be one and to have one minister. Because life cannot exist with two heads in one body."
Much of the Western world has supported 82 year-old President Abbas, who has outstayed a four-year term in office by eight years.
The Fatah leader is not considered popular among citizens, but the Fatah government has not signalled he will step aside at any point soon.
Fatah and Hamas have agreed to hold talks to discuss how to manage the general election in Gaza.
The United Nations' Middle East peace envoy, Nickolay Mladenov, has welcomed the development, saying the UN is ready to assist the talks in order to alleviate hardship in Gaza.
