The talks are aimed at resuming the work of Palestine's national unity government in the Gaza Strip.
The Fatah delegation includes central committee member Azzam al-Ahmad, who is responsible for the movement's reconciliation portfolio, as well as the minister for civilian affairs, Hussein al-Sheikh.
The Palestinian daily al-Quds reported on Wednesday that Egypt presented each side with 22 items for dealing with this stage of the reconciliation process, including a US-backed worldwide conference in the Egyptian town Sharm el-Sheikh, with a regional presence.
The talks began in the headquarters of the Egyptian intelligence in Cairo on Tuesday and will last for two-three days, a Fatah spokesperson said.
Azzam Al Ahmad, who heads the Fatah delegation, told media persons earlier that the main point of discussion would be "empowering the government in Gaza".
It said the talks were held "out of a sense of national responsibility and in response to the aspirations of the Palestinian people looking for an end to the division, achieve national unity and strengthen the steadfastness of our people". The Egyptian delegation in Gaza would also help facilitate movement through the Rafah border crossing, as well as help to solve the electricity and water crises now plaguing the Strip.
The shelling targeted a "monitoring station" that belongs to Islamic Hamas movement's military wing Al-Qassam brigades, the sources said.
Last week a ceremonial cabinet meeting with both groups was held in the Gaza strip. He stressed that the decision of peace and war and the form of resistance to which everyone is committed is a national decision rather than a sectarian one.
The Islamist group Hamas wrested control of Gaza from the mainstream Fatah party in 2007.
The PA had in the past few months cut the salaries of several Gaza employees and sacked a number of others in an attempt to pressure Hamas to return the coastal strip back under the control of the Palestinian government.
Speaking to reporters, one of the freed inmates, Taher Abu Armana, thanked Hamas Gaza chief Yehya Al-Sinwar and Mohammed Dahlan, a former Fatah security chief in the enclave, for his release.