Muneeb al Sayed perched his young grandson on the table and accepted a manila envelope, as the crowd around him broke into applause.

Inside the envelope yesterday were the keys to an apartment for Mr al Sayed, 54, and his family, in the Nahr el Bared Palestinian refugee camp in the north of Lebanon.

"I'm very, very happy," he said, holding the hand of his four-year-old grandson, also called Muneeb, who was dressed up for the occasion in a suit and tie. "We have families and children and we need a place to live."

Nearly four years after most of Nahr el Bared was destroyed in a fierce, three-month battle between the militant Fatah al Islam group and the Lebanese army, the al Sayeds were among the first to receive the keys to new homes yesterday.

UNRWA, the UN's Palestine refugee agency, handed over housing to an initial 43 families, as well as cheques to pay for furnishing the apartments.

Afifa Deeb, a woman in her 60s, clutched her keys tightly as the crowd cheered again. Like the al Sayed family, Ms Deeb is originally from the Palestinian village of Sa'sa', near the town of Safad in what is now northern Israel.

"Al hamdillah, thanks to God for this," she said. "I still want to go back my old house. It was very big and nice. Now it's nothing, just dirt on the ground."

Samira, Muneeb al Sayed's wife, said the day they were forced to leave their home because of the intense fighting was the toughest of her life. "We were running without anything, nothing, no possessions," she said.

More than 27,000 Palestinian refugees were displaced by the violence, which left homes, mosques, clinics, commercial properties and community facilities demolished. Today, thousands still remain in temporary shelter as they wait for their new homes to be constructed in Nahr el Bared camp, which was first established in 1949.

Yesterday Charlie Higgins, UNRWA's Nahr el Bared reconstruction project manager, spoke of the "modest start to a gradual process".

"It's a sign of hope for the whole camp, which many said could never be rebuilt and handed back to the people," he said.

After the official ceremony to hand over the homes, scores of people swarmed the main entrance to the apartment blocks.

As the families inspected their new flats, crowds clapped outside in an open area between the buildings, as women ululated, music blared from loudspeakers and young men danced in a spontaneous celebration.

Looking out from windows in her new two bedroom apartment was Mrs al Sayed and some of her nine children.

"It's very small, but what can we do?" she said, voicing a concern shared by others. "This is the happiest day of my life and I'm happy for all the people of Nahr el Bared."

Mohammed Amer, who sits on Nahr el Bared's Popular Committee of community representatives, said that while yesterday was a step in the right direction, it was also tinged with sadness.

"We are sad because of the factors that led to this - the war in our camp, that was against us," he said. "I am 62 and it was the most destructive war we ever witnessed."

Khalil Khader, the secretary general of the Popular Committee, said the camp's residents were the ones who "paid the price" of the 2007 conflict. "People are still suffering and living in temporary accommodation, suffering yet again.

"We consider this to be a second Nakba" (catastrophe), he said, using the term usually reserved for the events of 1948 that saw the state of Israel created and the loss of Palestinian homeland that first made refugees out of Nahr al Bared's residents.

While thousands wait to move into their homes, Mr Khader said there is also need for progress toward economic recovery in the camp, which used to be a thriving market.

According to the Popular Committees, 66 per cent of the camp's residents are now jobless.

The Lebanese army still controls access to the camp, where pockmarked structures and the concrete remains of destroyed buildings are a constant reminder of the scale of the violence of 2007.

According to Mr Higgins, 85 more families will move into new apartments in the coming weeks. UNRWA hopes to move all of the families into their new homes in the next two to three years. "For the community, today is a step in the right direction. Most of the things they see are movements in the wrong direction," he said.

But, the agency is again facing the possibility of major funding shortfalls with a further $207 million (Dh706m) needed to complete the massive reconstruction project, for which Mr Higgins said "continued political and financial support" is needed.