The framework agreement calls for the establishment of a new autonomous region to be called Bangsamoro, which means Muslim nation,in the southern region of Mindanao by 2016.
The government's chief negotiator, Marvic Leonen, and his Moro Islamic Liberation Front (MILF) counterpart, Mohagher Iqbal, signed the deal, which was reached after 15 years of negotiations mediated and hosted by Malaysia.
Philippine President Benigno Aquino III, Malaysian Prime Minister Najib Razak, MILF chairman Murad Ebrahim, Organization of Islamic Conference Secretary General Ekmeleddin Ihsanoglu and other foreign diplomats witnessed the signing in the presidential palace in Manila.
"Today, we sign a framework agreement that can finally seal genuine and lasting peace in Mindanao," Aquino said. "In the full view of the people and the international community, we commit to peace."
The agreement has been hailed by the international community and peace advocates in the Philippines as a key step towards ending aconflict that has killed more than 100,000 people since the 1970s.
But rebel and government negotiators still have to thrash out details to implement the plan, and some rebel leaders, local officials and analysts warned of more hurdles in the peace process.
A breakaway faction has also vowed to continue the armed strugglefor independence for Muslims in Mindanao while a terrorist-linked rebel group also remained a threat to peace in the region.
Najib vowed to help the Philippines and the MILF make the agreement work and develop Mindanao, offering training and assistance to the region's impoverished people.
"On this day of hope and promise, we must not forget the challenges that remain," he said. "The ink on this paper will not save a single life unless it is matched with a true and immovable commitment to peace."
Murad, who set foot in the Malacanang presidential palace for the first time, led about 200 MILF rebels in attending the signing.
"Never in my wildest dream since I was a child or when I joined the Bangsamoro struggle more than 40 years ago, did I think that oneday I will see the interiors of this building," he said.
The rebel chief said the landmark document restores the identity, homeland and right to govern of Muslims in the predominantly Catholic Philippines.
"Today we are here to celebrate ... a victory earned not by warbut by the collective desire tempered by inner nobility of humannature to restore justice and peace to a troubled land," he said.
The 12,000-strong MILF had been fighting the Philippine governmentsince 1978 when it split from the Moro National Liberation Front,which opted for autonomy and signed a peace agreement in 1996.
The MILF entered into peace talks with the government in 1997 andfirst agreed to accept autonomy in an unsuccessful round ofnegotiations in 2008.dpa