The voting for more than 900 seats in 84 municipal councils is of course important in its own right, as the mayor of Bethlehem on the West Bank, Hana Nasser, emphasized.
"This is a historical day, a very significant day for the Palestinian people because, as you know, they have chosen democracy to build their future institutions," Nasser said.
But Palestinian and Israeli politicians alike will be watching closely for clues to how Fatah and Hamas might fare in the coming Palestinian parliamentary elections in July.
It's a serious matter for Israel. Hamas is dedicated to the overthrow of the Jewish state, while Fatah seeks accommodation with it.
Hamas already scored a major upset with success in earlier rounds of local voting.
A strong showing today would be a big morale booster ahead of July's parliamentary polls -- the first in which Hamas will run.
But a Hamas victory today is far from certain.
Hisham Ahmed, a professor of political science at BirZeit University on the West Bank, told RFE/RL that if student council elections in the past month are any indication, Hamas might not do so well.
"In other elections, particularly in student council elections at several universities, as a matter of fact Islamic groups have not done well, as they used to do in previous years," Ahmed said. "Fatah perhaps had the upper hand in most of the institutions of higher education in the past month."
Led by new Palestinian Authority President Mahmud Abbas, Fatah is trying to shed the image of mismanagement and corruption it had under Yasser Arafat. Fatah is bringing in younger men to replace an older generation tainted with perceptions of cronyism.
As an example, Ahmed cited the announcement that Fatah -- in accord with democratic procedures -- will hold primary elections to select candidates for the Legislative Council, or parliament. This means candidates will be selected by the body of party supporters, not hand-picked by the party leader:
"There is a deepening feeling that this is indeed the crux of democratic practice which Fatah has underscored, and therefore I think people will be more responsive towards Fatah candidates, blocs, and slates in the current municipal elections," Ahmed said.
The rise of Hamas as a political force, meanwhile, has been a thorn in Israel's side for years. Hamas has long sent guerrillas and suicide bombers to attack Israeli targets.
Israeli commentator Willi Gafni said, however, that the possibility of Hamas winning democratic legitimization must be faced.
"I believe that if [Hamas] wins the elections, we will have to deal with that, and we will deal with it," Gafni said. "I cannot tell you how."
At BirZeit University, Professor Ahmed said he sees Hamas as ready to be pragmatic, and he said it has signaled that flexibility by joining in the current general cease-fire with Israel.
And he said that in little publicized remarks, some top Hamas leaders have said they would not rule out negotiations with Israel. That's despite the fact that Hamas formally sticks to its aim of destroying the Jewish state.