The rally, approved by Gaza's Hamas rulers, marks a renewed attempt by the rival Palestinian factions to show unity following a fierce Hamas battle with Israel in November and Fatah's subsequent recognition bid at the United Nations.
But many obstacles still remain before the sides can settle their differences, chief among them how to deal with Israel. Several rounds of reconciliation talks over recent years centered on finding ways to share power have failed to yield results.
Still, both sides expressed optimism following Friday's unprecedented Fatah show of strength that included hours of waving their yellow flags, dancing in the streets and chanting party slogans. For years, Fatah loyalists in Gaza faced retribution from the Hamas regime, which banned them from gathering.
"We feel like birds freed from our cage today," said Fadwa Taleb, 46, who worked as a police officer for Fatah before the Hamas takeover and attended Friday's rally with her family. "We are happy and feel powerful again."
Top Fatah officials arrived in Gaza for the first time since they were violently ousted. Palestinian President Mahmoud Abbas, who rules the West Bank, did not attend the event, but he addressed the crowd on a large screen telling them "there is no substitute for national unity."
Hamas Prime Minister Ismail Haniyeh also expressed hope that the two factions could reconcile their differences, sending Fatah a message that he hoped they could work together as joint representatives of the Palestinian people, according to Fatah official Nabil Shaath. Hamas was not directly involved in the event.
Ihab al-Ghussian, the chief spokesman for the Hamas government in Gaza, said the sides would "work toward the consolidation of national unity." Egyptian officials say a first such meeting in months between the factions is scheduled for next week in Cairo.
After the rally, Haniyeh called Abbas to congratulate him and Abbas in turn thanked Haniyeh for letting it happen, said Haniyeh spokesman Taher al-Nunu. He added that both leaders expressed hope that the cooperation would lead to renewed reconciliation efforts.
The warmer tone is a result of recent gains by both factions.
Abbas has enjoyed a boost in his status since he led the Palestinians' successful bid to upgrade their status at the United Nations to a non-member observer state. On Friday, he signed a presidential decree officially changing the name of the Palestinian Authority to the "State of Palestine." All Palestinian stamps, signs and official letterhead will henceforth be changed to bear the new name, according to the official Palestinian news agency Wafa.
The move marked the first concrete, albeit symbolic, step the Palestinians have taken following the November decision by the United Nations. Abbas has hesitated to take more dramatic steps, like filing war crimes indictments against Israel at the International Criminal Court, a tactic that only a recognized state can carry out.
Hamas, meanwhile, has gained new support among Palestinians following eight days of fighting with Israel in November, during which Israel pounded the seaside strip from the air and sea, while Palestinians militants for the first time lobbed rockets toward Jerusalem and Tel Aviv.
Following the fighting, Fatah allowed Hamas to hold its first rally in the West Bank since the 2007 split. Hamas returned the favor Friday by allowing the Fatah rally to take place.
Still, the two sides have wide differences - over Israel and over the possibility of sharing power.
Fatah has held several rounds of peace talks with the Jewish state and says it is committed to a two-state solution. Hamas does not recognize Israel and is officially committed to its destruction. Hamas has carried out hundreds of deadly attacks against Israeli citizens and is regarded by the U.S. and Israel as a terrorist organization.
Hamas political chief Khaled Mashaal, considered more pragmatic than the movement's Gaza-based hardline leaders, forged a reconciliation agreement with Abbas in 2011. But the Gaza-based leadership has held up implementing it and has blamed Fatah of doing the same.
Fatah enjoys Western support and has been pressured not to forge a unity agreement with the militant Hamas, facing a potential cutback in foreign aid if it does.
Friday's rally also served as a reminder of the conflicts within Fatah itself that continue to dog the movement: Officials cancelled the event halfway through after 20 people were injured due to overcrowding, and shoving matches erupted between separate Fatah factions.
Yahiya Rabah, a top Fatah official in Gaza, said the rally was cancelled "due to the huge number of participants and logistical failures."
But witnesses said one pushing match was between supporters of Abbas and partisans of Fatah's former Gaza security commander Mohammed Dahlan, who was expelled from the party because of conflicts with Abbas.
Another Fatah official, who spoke anonymously because he did not want to embarrass the party, said the rally was cancelled because hundreds of Dahlan supporters jumped up on the stage and clashed with Abbas supporters.
Fatah spokesman Fayez Abu Etta attributed the injuries to overcrowding and the excitement of the rally. Later, more Palestinians were injured when part of a stage collapsed. Youths also clashed and stabbings were reported. Gaza health official Ashraf al-Kidra said overall 55 people were injured, including three critically.
There was one death during the rally: A 23-year-old Fatah activist was electrocuted while trying to hang a flag on an electric pole.
Overnight, throngs had camped out in a downtown Gaza square to ensure themselves a spot for the anniversary commemoration of Fatah's 1965 founding, and tens of thousands marched early Friday carrying Fatah banners. When the rally began, people stampeded to the stage to try to shake leaders' hands.