The cabinet on Sunday approved the release of 250 Palestinian prisoners as a goodwill gesture toward Palestinian President Mahmoud Abbas.
The prisoners will be released to the West Bank, where Abbas's government holds sway, before next week's Muslim holiday of Eid al-Adha, officials said of the decision.
Outgoing Prime Minister Ehud Olmert had promised to free the prisoners during a meeting earlier this month with Abbas, who launched peace talks with Israel a year ago after Gaza's violent takeover by Hamas.
"This is a confidence-building measure," said Olmert's spokesman Mark Regev.
Regev said Israel will release prisoners from the ranks of Abbas's secular Fatah faction and other non-Islamist groups.
"This is a national priority for every Palestinian household," Palestinian negotiator Saeb Erekat said, welcoming the cabinet decision.
He said Israel has yet to tell the Palestinians whether it would consider freeing high-profile Fatah inmates such as Marwan Barghouti, who is seen as a possible successor to Abbas as president.
Minister Gideon Ezra said the goal in releasing prisoners was to help Abbas "earn the cooperation of the population" without undermining Israeli security.
"Abu Mazen [Abbas], in the past few months, has made efforts that we've never seen before, including trying to stop terrorism," Ezra said, referring to arrests made by Abbas's forces. "It's our commitment to do everything possible...to make it easier for him."
Nearly 200 prisoners were freed by Israel in August. U.S.-sponsored peace talks between Olmert and Abbas, rejected by Hamas, have shown little sign of progress.
Israel will also have to begin releasing the "bargaining chips" it arrested in 2006 in order to trade them for kidnapped soldier Gilad Shalit: Dozens of Hamas parliamentarians, along with several Hamas ministers, will have to be released within the next year, even if no deal for Shalit is struck, because they will have finished serving their two- to three-year sentences.
All of the detained Hamas officials are on the list of prisoners Hamas is demanding in exchange for Shalit, and Israel has no objection to including them in the swap. Thus far, however, there has been no significant progress in the negotiations, senior defense officials said.
The officials said that while Hamas recently responded to Israel's latest proposal, the gap between the sides remains large. Altogether, Hamas is demanding Israel free 1,400 prisoners, including 350 it has specified by name. Most of these 350 were convicted of involvement in major terror attacks, and Israel has thus far agreed to release only 150 of them.
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