Israel agreed on Sunday to transfer hundreds of millions of dollars to Palestinian President Mahmoud Abbas's emergency government, a measure designed to undercut Hamas Islamists controlling Gaza.
The money, Palestinian tax revenues withheld by Israel since Hamas came to power in a 2006 election, is part of an initial package of benefits to bolster Abbas that Prime Minister Ehud Olmert is likely to announce at a summit in Egypt on Monday.
Israel wants to isolate Hamas economically, diplomatically and militarily in the Gaza Strip, which the Islamist group seized control of more than a week ago, while allowing funds to flow to Abbas's emergency administration in the West Bank.
An Israeli government official said Olmert's cabinet approved the transfer of about $350 million, short of the $700 million the Palestinians say Israel is holding. Israel says courts have frozen some of the funds to cover Palestinian debts.
The money slated for release will be given to the emergency administration in stages, the official said, once a mechanism is in place to ensure it does not reach Hamas in Gaza.
"The Israelis should release all our money. These are Palestinian, not Israeli, funds," Saeb Erekat, a senior Abbas aide, told Reuters after the cabinet decision.
It was not immediately clear if the Israeli government also approved proposals to ease travel restrictions for Palestinians in the occupied West Bank, where Abbas's Fatah holds sway.
"We will attempt in a sober and cautious manner to take advantage of the opportunities created as a result of the recent events in the Gaza Strip, in order to build a diplomatic process with the Palestinians," Olmert told reporters.
Freeing up the tax revenues, he said, would "gradually help the new Palestinian government-one that is not a Hamas government". The cabinet decision also cleared the way for Israel to resume monthly tax revenue transfers of about $50 million.
Since Hamas's violent take-over of Gaza, Olmert has spoken of laying the groundwork for a resumption of talks with Abbas on Palestinian statehood, but has stopped short of accepting his call for immediate negotiations on a final peace treaty.
Olmert was referring to Western demands, rejected by Hamas, to recognise Israel, renounce violence and abide by existing interim peace agreements. Israel plans to choke off all but humanitarian and basic supplies to Gaza, home to 1.5 million people, and Olmert pledged Israeli supplies of petrol and electricity would continue.
In talks with their Israeli counterparts, US officials have requested Israel ease restrictions on Palestinian access to the Jordan Valley, as well as remove barriers, checkpoints and roadblocks near major West Bank Palestinian population centres.
Israeli defence officials have mainly objected to removing the roadblocks and checkpoints near the city of Nablus, arguing they are needed to prevent militants from criss-crossing the West Bank and infiltrating Israel. Palestinians say the checkpoints are collective punishment.