However, although confusion and anger is certain to spread on the streets, moderate leaders who support the peace deal were not despondent, saying they still expected withdrawal by Israeli forces to begin in the near future. Furthermore, they supported Mr Arafat for not giving in to Israeli demands on the central areas of dispute, including control at border crossing points, the size of Jericho, and Israeli military presence in and around Jewish settlements.
'Arafat has shown that the PLO are not going to give the Israelis everything they are asking. We all knew this process could take a long time, and the delay is no big surprise. Mr Arafat has shown to Palestinians opposed to the agreement that he is thinking seriously about the future of Palestine,' said Sami Abu Samhandani, a PLO leader in Gaza.
Among the Palestinian public, expectations had been high in Gaza, and in the West Bank town of Jericho, where Israeli withdrawal was due to start first, that today would bring the first substantial evidence that the peace agreement, signed in September, was for real.
In Gaza City and refugee camps nearby Palestinians waited anxiously last night for the outcome of the Cairo talks. Reports had circulated during the day that troops would start withdrawing from Jabaliya camp, one of the largest refugee camps in Gaza, overnight. Unusual troop movements fuelled such speculation. There were also reports that Israel was preparing to pull back from other Palestinian towns, and to evacuate a police station.
However, Mr Rabin and Mr Arafat announced they had failed to resolve their differences and the start of withdrawal was to be delayed for at least 10 days. Some symbolic gestures of withdrawal are still expected today to try to ease public anxiety. And hopes remained high last night that Israel would go ahead with the planned release of up to 1,000 political prisoners. But the message from Cairo swiftly dampened the earlier excitement in Gaza.
'The people here are very disappointed,' said Mr Abu Samhandani. 'That disappointment may lead to anger and to violence.'
While Mr Rabin had deliberately prepared Israeli public opinion for the possibility of a delay, saying today was only a 'target date', Mr Arafat had raised hopes, saying that 13 December was a 'sacred day'. The Rabin government has emphasised that it views the deadline for completion of withdrawal, 13 April, as more important than the date set for the start.
Mr Arafat's failure to lower expectations when the negotiations ran into difficulties brought him criticism yesterday.
'If the people here now see no changes on the streets they will become suspicious of Israeli intentions. This will not help the peace agreement,' said Marwana Kafarnah, an opposition Palestinian activist.
Militants opposed to the peace deal, in particular members of Hamas, the Islamic Resistance Movement, are expected to use the delay to fuel opposition, and to undermine the credibility of Mr Arafat and the PLO.
At the same time violent elements within Fatah, the mainstream moderate group within the PLO, are expected to break ranks and resort to arms as a show of strength. In recent weeks the Fatah Hawks, an armed group within Fatah, have made clear they are not bound by Mr Arafat's call to lay down arms, issued after the peace agreement was signed.
'During the next few days we may see more violence from Fatah elements. They will want to show the Israelis we are going to the talks not because we have no other choice about how to achieve our ends,' said one Fatah source.