Israel has said it will free around 440 Palestinian prisoners on Wednesday, fewer than originally thought.
A woman and several children were injured in Sunday's shooting
Israeli Prime Minister Ariel Sharon had said last month that at least 500 would be released.
Sunday's announcement follows an Israeli cabinet committee meeting on the issue, an issue which correspondents say is fundamental to the success of the internationally-backed peace plan known as the roadmap.
The statement was marred by news of a shooting of an Israeli woman and three children.
They were wounded after a suspected Palestinian gunman fired on their car at the roadblock between Jerusalem and the West Bank town of Bethlehem, officials said.
It was not immediately clear who carried out the shooting, which left the mother and her nine-year-old daughter in a serious condition.
4 Aug: Names to be published on the internet
48-hour period for objections to be lodged
6 Aug: Prisoners to be released
The names of the prisoners who are due to be released will be published on the Israeli prison service's website on Monday.
There will be a 48-hour period for any objections to be made to their release and then, unless further obstacles emerge, some or all of the named prisoners will be freed.
BBC correspondent Nick Thorpe in Jerusalem says that more could be let out in the coming weeks, in one of the most symbolically important steps taken by Israel so far.
A mass release of Palestinian prisoners had been promised for several weeks by the Israelis.
Our correspondent says militant organisations like Hamas and Islamic Jihad will be watching closely to see which of their members will be released from Israeli prisons.
ROADMAP MAIN POINTS
Phase 1 (to May 2003): End to Palestinian violence; Palestinian political reform; Israeli withdrawal and freeze on settlement expansion; Palestinian elections
Phase 2: (June-Dec 2003) Creation of an independent Palestinian state; international conference and international monitoring of compliance with roadmap
Phase 3 (2004-2005): Second international conference; permanent status agreement and end of conflict; agreement on final borders, Jerusalem, refugees and settlements; Arab states to agree to peace deals with Israel
Previous statements by officials implied the Israeli Government was ready to release about 600 prisoners - one in 10 of approximately 6,000 currently being held.
Last month, shortly before Prime Minister Sharon met US President George W Bush in Washington, Israel announced it would free 540 prisoners, including 210 members of Hamas and Islamic Jihad.
Our correspondent says the issue of prisoner releases is seen within the Palestinian community as a benchmark of Palestinian Prime Minister Mahmoud Abbas' success or failure to negotiate with Israel.
The prime minister, also known as Abu Mazen, was appointed after pressure from Israel and the United States for Yasser Arafat to share power.
Earlier on Sunday, a tense stand-off between 17 Palestinian militants and Palestinian security forces loyal to Yasser Arafat ended with compromise.
The men, who are wanted by Israel, were arrested by Palestinian security forces on Saturday, months after they took shelter in the compound.
The Palestinian authorities have now agreed to allow the arrested militants to remain inside Mr Arafat's Ramallah compound instead of transferring them to a prison West Bank town of Jericho.
The deal was reached after the militant al-Aqsa Martyrs' Brigade - to which the men belong - threatened to abandon a ceasefire and renew attacks on Israel.
Palestinian militant groups announced a ceasefire on 29 June, but Israel wants the groups dismantled altogether.