A power-sharing agreement was signed in the Zimbabwean capital, Harare, today.
The deal follows seven weeks of negotiations between Zimbabwean President Robert Mugabe's ZANU-PF party and the opposition Movement for Democratic Change led by Morgan Tsvangirai.
Under the deal, Mr Mugabe will remain president, while Mr Tsvangirai will become prime minister and chair a council of ministers supervising the cabinet.
The audience cheered as the agreement was signed in front of African leaders, including Tanzania's Jakaya Kikwete, chairman of the African Union, Swaziland's King Mswati III and South African President Thabo Mbeki, who brokered the deal.
Mr Mugabe, Mr Tsvangirai and Arthur Mutambara - who heads a breakaway MDC faction - exchanged copies of the agreement and shook hands.
Zimbabweans hope the agreement will be a first step in helping to rescue the once prosperous nation from economic collapse.
Inflation has rocketed to over 11m percent and millions of people have fled to neighbouring southern African countries.
Mr Mugabe and Mr Tsvangirai last week agreed the deal to end a deep political crisis compounded by the veteran leader's disputed and unopposed re-election in June.
Deal to split control of security
The deal is expected to split control of the powerful security forces that have been key backers of Mr Mugabe.
The president, a former guerrilla commander, is likely to retain command of Zimbabwe's strong army, but the MDC wants to run the police force.
ZANU-PF will have 15 cabinet seats, MDC 13 and a splinter MDC faction three seats.
Mr Mugabe, 84, who has ruled Zimbabwe since independence from Britain in 1980, will remain president and head the cabinet.
Analysts say the power-sharing deal is shaky and will require former enemies to put aside their differences and work closely to overcome scepticism, especially from Western powers whose financial support will be vital for recovery.
The EU has put a decision on sanctions against Zimbabwe on hold after the deal, EU foreign policy chief Javier Solana said today.
‘The sanctions for the moment will not be changed today. The decision will probably be taken in October,’ he told reporters before a meeting of EU foreign ministers.
Mr Solana said the EU needed to study the details of the deal but he expected it to open a new page for the country.
The two political rivals met on Saturday and agreed to share out the cabinet posts. The powerful state security ministry was abolished while the justice portfolio was split in two and a new prisons department was created.
