The rival Hamas movement allowed Fatah to celebrate the 48th anniversary as part of efforts to close the rift between the two sides, the BBC reported.
The two groups pledged to strengthen their relationship in November after the U.N. General Assembly agreed to recognize Palestine as a non-member state, Voice of America reported.
Some Fatah officials said up to half a million supporters crowded the streets for the occasion, carrying yellow flags and photos of Palestinian President Mahmoud Abbas.
A pre-recorded message from Abbas was played at the rally, and a Hamas representative was expected to make a speech, the BBC reported.
"Palestine is for all of us, we are partners in this nation. Hamas cannot do without Fatah or Fatah without Hamas or any movement," Hamas leader Khaled Meshaal said last month.