This paper proposes a method of electrification for rural areas using stand-alone hybrid system based mainly on renewable energy sources and diesel generator. The optimum size of each component in the hybrid system to electrify a small village in Palestinian territories is the main objective of this work. The small village comprises about 25 households with some service buildings. The average energy demand is 275kWh/day. The average and maximum power demand are 11.4kW and 24kW, respectively. The region has abundant solar radiation potential with a daily average 5.4kWh/m2 and average wind speed of 4.22m/s. The optimum design for this complicated hybrid system is based on HOMER Pro software which requires incident solar radiation data, wind speed data, electrical demand profile for the village, fuel cost, equipment characteristics and costs. The optimization results showed that the best hybrid system among all feasible configurations is photovoltaic/wind/energy storage systems with diesel generator. The net present cost of the system is US$491,635 and the cost of energy (COE) produced is US$0.427/kWh. The payback period is approximately 12 years at selling price US$0.4/kWh. Sensitivity analysis are considered to study the impact of variations in average wind speed, cost of fuel, cost of storage and cost of PV modules at different maximum annual capacity shortages.