The recent agreement between the Palestinian groups creates the potential for real progress.

After decades of conflict in the Middle East and countless abortive efforts to put in place a real peace process, there is understandable cynicism about the potential for any initiative to significantly change the political dynamic in that region.

However, the emergence of major movements for democratic change in the Arab states, and especially in Egypt, is doing just that.

This is the new context in which an agreement to reconcile the opposing positions of the Palestinian factions was achieved.

The unity accord between Hamas and Fatah goes beyond those two organisations. For the first time all 13 Palestinian factions have signed up to an agreed process behind an agreed strategy to achieve Palestinian statehood.

This is an important development. Too often in the past internal divisions among the Palestinians have been exploited by Israel and others to thwart Palestinian efforts to advance their political objectives. Now for the first time all of the Palestinian groups have come together and agreed a way forward.

This includes creating an interim government to run the west Bank and Gaza and Presidential and Parliamentary elections within the next year.

The Palestinian agreement also plans to ask the United Nations in September to recognise a Palestinian state in the west Bank and Gaza.

Significantly the agreement to end the four year rift between Hamas and Fatah came after lengthy negotiations and against a background of street demonstrations by Palestinians calling for political unity. It is also important to note that the deal was brokered in Cairo by the new administration there.

For the last 30 years the Egyptian regime, first under Sadat and then Mubarak, has worked closely with Israel. It is widely accepted that Mubarak was always less than supportive of efforts to achieve an end to the divisions between Fatah and Hamas and the other Palestinian groups.

However, the overthrow of Mubarak now means that there is in Egypt an administration which has openly criticised the previous policy of co-operating with Israel and is less hostile of Hamas.

In addition, other Arab states have already indicated their support for Palestinian reconciliation.

The Palestinian agreement therefore creates a unique opportunity for a real negotiation involving Palestinian and Israeli representatives to achieve a viable peace settlement.

It will not be without its difficulties and all sides must be prepared to take major risks if progress is to be achieved.

The initial response of the Israeli government has been disappointing. Instead of thinking long term and strategically it has knee jerked and is responding tactically. The Israeli government has condemned the Palestinian Agreement, frozen €60 million in tax revenues to the Palestinian Authority, and wants the EU to freeze €288 million in aid which it provides to the Palestinians annually.

At a time when Arab and Palestinian demonstrations are for democracy, accountable government, and progress, the Israel government wants to punish the Palestinian people who are already among the most impoverished in the Arab world!

This approach by the Netanyahu government reflects a position that is mired in the past and seeks to prevent real progress.

The Israeli government needs to come to terms with the fact that the political dynamic in the wider Middle East and Arab world is changing. The agreement between Fatah and Hamas reflects this.

I have visited the West Bank, Israel and the Gaza strip on two occasions in recent years. During those visit I met with senior representatives of the Palestinian Authority and of Hamas. I have also spoken to Israeli representatives. Sinn Féin representatives have regularly visited the region.

I do not underestimate the challenges which the Palestinian Agreement presents for all sides.

Nor do I underestimate the difficulties in seeking to reach a political settlement. The issues that have to be resolved are considerable; a viable Palestinian state; Israeli occupation of Palestinian land; an end to the siege of Gaza; the settlements; water rights; refugees; prisoners; the Separation wall and Jerusalem.

Dialogue, involving substantive and inclusive negotiations, including Hamas, is the key to making progress. Dialogue and negotiations between equals is essential.

I believe that agreement is possible. Most citizens living in Israel, and the West Bank and Gaza already know its broad outline.

Thus far making real progress toward it has been frustrated by divisions among Palestinians and a lack of positive leadership from within Israel.

The Palestinian Agreement opens up the possibility that the log jam might now be broken. Achieving this will require courageous political leadership, and a willingness to make compromises on all sides.

Gerry Adams is a Member of the Irish Parliament for the north-east Louth constituency, and President of Sinn Féin.