Qatar's emir was warmly welcomed on a landmark tour of the Gaza Strip on Tuesday in the first such visit by a head of state since the Islamist Hamas movement took over in 2007.
Thousands of Qatari and Palestinian flags were fluttering across Gaza to mark the visit by Sheikh Hamad bin Khalifa al-Thani to inaugurate a multi-million dollar project to rebuild the impoverished Palestinian territory.
The visit is a diplomatic coup for Hamas, whose government international dignitaries have boycotted since the movement forcibly took over the territory in 2007, ousting forces loyal to the western-backed Palestinian Authority of president Mahmud Abbas.
Gaza's Hamas prime minister Ismail Haniya hailed the visit as a "victory" over the political and economic siege on his Islamist government.
"You are officially declaring the end of the political and economic blockade imposed on the Gaza Strip by the forces of injustice and tyranny," he told the emir.
He was referring to a political boycott as well as an Israeli blockade in place since 2006 which prevents Palestinians from bringing construction materials into the territory.
"Today we demolish the wall of the blockade through this visit, thank you Qatar!" he said.
On arrival from neighbouring Egypt's Sinai peninsula, the emir was warmly welcomed by a large delegation of top Hamas officials led by Haniya and his cabinet.
Last month, Doha said it would invest $254 million (195 million euros) in rebuilding Gaza which sustained major damage during a 22-day Israeli operation that began in late December 2008.
But on opening a Qatari project to build 1,000 homes in the southern city of Khan Yunis, Haniya announced that the emir had decided to significantly increase the initial sum.
"The emir agreed to increase the Qatari investment from $254 million to $400 million (307 million euros)," Haniya said as Sheikh Hamad laid the foundation stone for the project, which is being named in his honour.
The increased funding would mean an extra 2,000 homes would be built in "Emir Hamad City," and would also go towards a $25 million (19 million euro) housing project for prisoners released last year in a landmark swap deal with Israel, he said.
Also travelling with the emir is his wife, Sheikha Moza bint Nasser, and Qatari Prime Minister Sheikh Hamad bin Jassem al-Thani.
It was the second time the Qatari leader had visited the tiny coastal territory -- his first visit was in 1999 -- and coincides with a spike in tension between Hamas and Israel.
In the morning, an Israeli soldier was severely wounded in armed clashes along the border, and on Monday two militants were killed and four injured in Israeli air raids, which prompted threats of revenge from Hamas's armed wing.
Israel has promised to hit back at anyone targeting soldiers or civilians.
Since Hamas forcibly took control of Gaza in 2007, visitors such as UN Secretary General Ban Ki-moon and European Union foreign ministers have avoided any contact with the Islamist government.
In Ramallah, Abbas welcomed Qatar's investment in Gaza but stressed the need to "preserve the unity of the Palestinian territories" in a terse statement on Sunday that was widely seen as veiled criticism of the visit.
The Palestinian Authority routinely opposes any diplomatic acknowledgement of Gaza's Islamist government, arguing that it only serves to reinforce the yawing political divide between Fatah and Hamas.
In a terse statement late on Monday, the Palestine Liberation Organisation's Executive Committee urged Arab nations to "invest all their efforts into ending the division and not to continue the policy of having a separate entity," saying it would only play into Israel's hands.