The meeting between Israel's Prime Minister, Yitzhak Rabin, and the Palestine Liberation Organisation chairman, Yasser Arafat, at the Erez crossing was their first in Gaza since Mr Arafat moved there last month to run the self-rule government.
'We don't have a magic wand, but we hope that with determination . . . we will be able to overcome all our obstacles,' Mr Arafat said after the 90-minute meeting.
Mr Rabin said that the subject of Jerusalem had not been discussed, but that 'there had been remarks here and there about Jerusalem'. He emphasised that Jerusalem was an issue in the talks, due to begin by 1996, on the final status of the occupied territories .
Yesterday's meeting came after Palestinians were angered by the rapprochement between Israel and Jordan in the past two weeks, especially when their initial pact gave Jordan a role in supervising the holy sites in Jerusalem.
Mr Rabin lashed out at Farouk Kaddoumi, the Palestinian Foreign Minister, for remarks in Tunis when he said that the violence against Israel should continue until all Palestinian lands were liberated. Mr Rabin called his statement a serious violation of the self-rule accord.
He said that committees would meet next week at Erez to discuss elections, among other issues. He and Mr Arafat might meet in two weeks if required.
Police on both sides mounted a major security operation, with the roads leading to the crossing point - a previous scene of violent clashes - sealed before the 3pm meeting.
Issues on the agenda included the release of thousands of Palestinian prisoners from Israeli jails, expanding self-rule elsewhere in the West Bank, implementing the safe-passage agreement across Israel between Gaza and Jericho as well as the overall size of Jericho.
The two sides are weighing up whether to use the United Nations as a channel for Western aid to keep the self-rule government in operation, an Israeli official said. But neither Mr Rabin nor Mr Arafat addressed the issue directly in their press conference. The UN could help meet the World Bank's demands for better accounting methods by the PLO. The row has delayed the disbursement of most of the dollars 2.4bn ( pounds 1.57bn) promised for aid.