Israel and the Palestinian Authority are negotiating over Israeli moves that would pave the way for a meeting between Prime Minister Benjamin Netanyahu and PA President Mahmoud Abbas.

According to two Israeli sources and two Western diplomats, who asked not to be named because of the sensitivity of the issue, Netanyahu has expressed willingness to release initially some 25 Palestinian prisoners convicted of the murder of Israelis and another 100 prisoners by the end of 2012.

All four diplomats confirmed that Netanyahu's representative, Isaac Molho, was representing Israel in contacts with the PA's negotiations chief Saeb Erekat.

Molho and Erekat met last week in Jerusalem for several hours and have also spoken by phone a few times.

The Palestinians have set two conditions for a meeting with Netanyahu. The first is the release of 123 prisoners incarcerated in Israel since before the Oslo Accords. Most of these prisoners are Fatah members who have now been in prison for between 25 and 35 years, after being convicted of involvement in terror attacks in which Israelis were killed. The second condition is that the PA security forces in the West Bank be supplied with new weapons.

Molho reportedly told Erekat that Israel would make no gestures before a Netanyahu-Abbas meeting took place, but would agree to announce such concessions after, and perhaps even during, such an encounter.

Israel said any gestures it takes would have to be implemented over a period of a few months.

The Israeli sources and the diplomats said Netanyahu is apparently willing to begin a gradual release of the prisoners the Palestinians want freed, beginning with 25 and releasing the rest in four groups by the end of the year.

Netanyahu is also said to be willing to provide weapons to the Palestinian security forces, particularly because Israel's defense establishment supports such a move.

Over the past weeks, the PA's security forces conducted a major operation in the northern West Bank, arresting hundreds of Fatah activists who had joined the PA security forces after being pardoned by Israel, but then returned to criminal activities. The PA also confiscated numerous illegal weapons.

Netanyahu wants the new weapons to be provided gradually to the PA; for every old or unusable weapon returned to Israel, the Palestinians will receive a new one and ammunition, which Jordan has agreed to supply.

Israel would then be prepared to consider allowing the PA to take delivery on a number of armored vehicles that Russia donated a few years ago to the PA, which have since been in storage in a base in Jordan.

Israel has refused a Palestinian request that machine guns be mounted on the vehicles.

Netanyahu has also proposed an improved mechanism for cooperation between the finance ministries of Israel and the PA, to streamline the collection of taxes which Israel collects on behalf of the PA in keeping with bilateral agreements. In this way, the PA will receive another NIS 50 million a month, which it desperately needs.

The method of cooperation was agreed on a few months ago, but Israel has so far refused to implement it.

The Palestinians are at this point said to be in no hurry to agree to Netanyahu's proposal; they are concerned that after the initial stage of prisoner release Israel will find excuses not to carry out the other four. The Palestinians also say Israel's proposal for the exchange of old weapons for new ones is "humiliating," and does not meet their security needs.

Netanyahu's office denied on Sunday that negotiations were underway with Abbas over a meeting in exchange for a prisoner release or other gestures. However, the premier said last week during a meeting of the Knesset Foreign Affairs and Defense Committee that he could see the Palestinians were increasingly ready for talks with Israel, even if they would not be defined as diplomatic negotiations per se.

Netanyahu told the Knesset committee the Palestinians were less and less insistent about their preconditions, although chances were slim that talks would move ahead before the American presidential elections in November.

Talks between Erekat and Molho are ongoing ahead of U.S. Secretary of State Hillary Clinton's visit to Israel next Monday. This will be Clinton's first visit to Israel since September 15, 2010, when she, Netanyahu and Abbas met at the prime minister's residence in Jerusalem. The talks have been stalled since that meeting.

The United States and Israel believe that a Netanyahu-Abbas meeting and Israeli moves could create an atmosphere in which Abbas is less likely to approach the United Nations once again in September with a request to receive the status of a non-member observer state.

At a meeting between Clinton and Abbas in Paris on Friday, Clinton urged the PA president to respond positively to the Israeli proposal.

Abbas also met in Paris with French President Francois Hollande and with the European Union foreign policy chief Catherine Ashton, as well as with the foreign ministers of Germany, Britain, Holland and Norway.

Molho himself met a few days earlier with French Foreign Minister Laurent Fabius. He also met with Ashton in Brussels and with British Parliamentary Under Secretary of State Alistair Burt in London. Molho presented the "package" Israel is offering the Palestinians to all these officials, and asked that pressure be brought to bear on Abbas to accept it and meet with Netanyahu.