Torches are lit at a vigil for Palestinian prisoners held in Israel
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Israel will release 170 Palestinian prisoners within days after the move won ministerial committee approval.
The release is part of an agreement with Egyptian President Hosni Mubarak that saw Egypt free an Israeli spy.
Prime Minister Ariel Sharon said on Sunday that the decision was "a goodwill gesture" and showed "deep friendship" for Mr Mubarak.
No prisoners jailed for planning or carrying out attacks that killed Israelis will be freed.
Fatah movement
Israel's cabinet had approved the move last weekend, saying it was also a goodwill gesture to the new Palestinian leadership following the death of Yasser Arafat and ahead of next month's elections.
Government spokesman Raanan Gissin said last weekend that the decision "shows our intention to change the general atmosphere and to move forward with the [peace] process".
Israel Radio reported that 120 of those being freed were from the leading Palestinian Fatah movement and the others were illegal entrants into Israel.
Palestinian officials have regularly called for the release of thousands of prisoners and have urged Israel to co-ordinate releases with them.