Reversible transformation of the palladium catalyst during thermal cycling was investigated with X-ray absorption fine structure. PdO was transformed to Pd at 850 degrees C upon when the air temperature was increased while the reverse transformation occurred at 680 degrees C. On-line TGA/MS measurements combined with EXAFS/XANES showed oxygen generation at 680 degrees C, indicating that the metal-support interaction stabilizes the catalyst, by transforming to the surface attached PdO and further to Pd metal agglomerates at 850 degrees C. Thermal stability of the Pd metal agglomerate was also improved by coating the Pd catalyst with TiO2.