BETHLEHEM, West Bank — The ancient city of Bethlehem (search) was turned over to the Palestinians Wednesday afternoon after both Israeli and Palestinian leaders promised painful concessions in order to end the violence that has plagued their region for nearly three years.

Palestinian police moved into the town with sirens blaring. Bethlehem was the second area handed over by Israel under a U.S.-backed Mideast peace plan. Israeli troops pulled out of Gaza late Sunday.

Residents clapped as a column of police in dark blue uniforms marched from their barracks toward the center of town.

Palestinian Prime Minister Mahmoud Abbas (search) said Tuesday that the turnover of Bethlehem and Gaza by the Israelis would be "followed by pullbacks from the rest of the cities and towns and Palestinian refugee camps."

Abbas and Israeli Prime Minister Ariel Sharon (search) held a summit Tuesday, at which the two leaders hammered out the details of the plan to withdraw Israeli troops from those areas and to hand over the town after the last of the Israeli soldiers left. On Tuesday, army transport trucks hauled equipment away from two Israeli bases next to the town.

Meanwhile, the United States announced a $30 million aid package on Wednesday for the West Bank and Gaza Strip to repair Palestinian infrastructure damaged by Israeli military actions, Reuters reported.

Jeffrey Feltman, acting U.S. consul-general in Arab East Jerusalem, said the aid went "hand in hand" with the Palestinian Authority's "aggressive pursuit of an ambitious reform agenda" as required by the U.S.-backed "road map" peace plan.

At a barracks near a derelict helipad, laughing Palestinian police tried on their uniforms. Nearby, a special forces officer barked orders at recruits in green camouflage and bright red berets as they practiced marching in a courtyard.

"Today, we're restoring our leadership in one city in this land," their commander, Hani Deek, said. "I hope the rest will soon follow."

However, as long as Bethlehem remains encircled by Israeli checkpoints, residents don't expect the handover to change much.

"They are making fools out of us," said Jaudat Joude, who has been unable to reach his job at a Jerusalem welding factory since the uprising began almost three years ago. "If you want to make some serious changes, open the roads, remove the checkpoints and let people in to work. Then maybe we can believe that the Israelis have good intentions."

Israeli forces have occupied Bethlehem several times in the past three years, once holding the Church of the Nativity under siege for a month, demanding surrender of Palestinian gunmen who had fled inside the shrine that marks the traditional birthplace of Jesus.

After a suicide bombing on a Jerusalem bus on Nov. 21, carried out by a Palestinian from Bethlehem, soldiers went back in and stayed.

The military said Tuesday that Israel would be in charge of security of Israelis, including settlers in nearby villages, while Palestinian security forces committed to preventing "terrorist attacks in the areas under their responsibility."

A similar formula held in Gaza.

Tuesday's summit was the first time Sharon and Abbas spoke before reporters and cameras at a Jerusalem summit, their third in six weeks. The atmosphere was cordial and friendly.

Palestinian and Israeli Cabinet ministers, some of them enemies until recently, sat at a table next to the two podiums, chatting and smiling. That established a relaxed setting for conciliatory language not heard in the region during three years of bloodshed.

"Even if we are required to make painful compromises, I will be willing to make them for the sake of true peace -- a peace for generations, the peace that we all yearn for," Sharon said.

Abbas responded in kind: "Enough suffering, enough death, enough pain. Let us stride forward with courage and without hesitation to the future we all deserve."

Both premiers committed themselves to the "road map" peace plan President Bush launched at a June 4 Mideast summit with Sharon and Abbas. The plan leads through three stages to the creation of a Palestinian state in 2005.

Abbas and Sharon, joined by senior Cabinet ministers and aides, then withdrew for two hours of talks aimed at resolving disputes over the next moves.

They agreed to bring back committees that were set up during the first years of peace efforts in the 1990s to discuss issues including security, prisoners and legal matters, according to officials on both sides. The committees were suspended during the current violence.

Abbas also asked for freedom of movement for Palestinian leader Yasser Arafat, who has been confined to his West Bank headquarters by Israel for more than a year. Sharon said he would consider allowing Arafat to move to Gaza, but a senior Israeli official, speaking on condition of anonymity, said it would be a "one-way ticket."

The Palestinians have made so much progress that the Bush administration may resume direct aid to the Palestinian Authority -- with a big boost to help strengthen its security forces.

White House spokesman Ari Fleischer said Tuesday that "circumstances have changed" and specifically pointed to the Palestinians' new finance minister, Salam Fayad.

Left behind in Ramallah as Abbas traveled to Jerusalem, Arafat told reporters, "We hope that they will continue with implementation of the road map plan, which means complete withdrawal from all Palestinian lands."

However, there were many misgivings and suspicions left over from previous failed attempts to stop the violence and move toward peace.

The chief of Israel's Shin Bet security service, Avi Dichter, said Tuesday that Israel would withdraw from other West Bank towns only if Palestinian police begin disarming Hamas, Islamic Jihad and other violent groups in the Gaza Strip.

"We will not move on to transfer responsibility for the West Bank before it becomes totally clear that in Gaza the process of disarming terror groups has begun," Dichter told a symposium at Tel Aviv University.

Abbas opposes the use of force against militias because he fears it could trigger a civil war. He suggested Tuesday that illegal weapons would not be confiscated, but that Palestinian police would try to persuade militiamen not to use them.

The Associated Press contributed to this report.