Israel has approved measures it says are aimed at ensuring that next month's Palestinian election goes smoothly.
Sharon: Palestinian elections important for peace
Prime Minister Ariel Sharon said the whole world had to see that Israel would allow a free and fair poll.
The cabinet authorised the easing of restrictions in the run-up to the election, ordering the Israeli army to pull out of Palestinian cities.
The announcement came as presidential frontrunner Mahmoud Abbas again urged an end to Palestinian violence.
He said his people could only achieve independence through peaceful means.
Mr Abbas - also known as Abu Mazen - officially launched his campaign for the January election on Saturday, calling on Israel to end its occupation of both the West Bank and Gaza.
After Sunday's Israeli cabinet meeting, Mr Sharon said the elections were "important in creating a leadership with which we hope it will be possible to make
progress" in peace talks.
The cabinet also allowed Palestinian candidates to campaign in disputed East Jerusalem.
In a separate development, the Israeli government said a number of Jewish settlers had agreed voluntarily to leave the Gaza Strip as early as March.
The head of the disengagement administration, Yonatan Bassi, said about 20 families from one small settlement - Peat Sadeh - and five other settler families had agreed to move to a farm community within Israel.
Mr Sharon's controversial disengagement plan entails evacuating the 8,000 settlers from Gaza and four West Bank enclaves, as well as the troops who protect them .
More violence was reported in the Gaza Strip on Sunday.
Hamas militants enjoy widespread support - especially in Gaza
Israeli soldiers killed two Palestinians near the Bureij refugee camp in the centre of the strip, according to Palestinian officials.
The Israeli army says its troops opened fire on people crawling near the border fence near the camp.
The Islamic militant group Hamas said two of its members died while attempting to plant a bomb near an Israeli army position.
Meanwhile, results from the West Bank municipal elections held on 23 December have confirmed that Hamas made significant inroads against the mainstream Fatah movement.
Palestinian Authority officials said that Fatah still held a majority of council seats, but that Hamas had scored victories at least eight municipalities.
Hamas, which regards the Israeli state as illegitimate, has urged Palestinian not to vote in next month's presidential election.