Israel's cabinet has backed Prime Minister Ariel Sharon's plan to withdraw soldiers and settlers from the Gaza Strip and parts of the West Bank.
Many Jewish settlers are opposed to the plan to pull out of Gaza
Ministers voted 17-5 in favour of the plan to remove settlers starting from 20 July. The plan has already been approved by parliament.
The cabinet also endorsed a revised route for the controversial separation barrier in the West Bank.
Palestinians fear they stand to lose West Bank land as a result.
The BBC's Barbara Plett in Jerusalem says both decisions could shape future borders between the two peoples, and the twin vote has fuelled Palestinian fears that Israel is trying to cement its grip on the West Bank as it withdraws from Gaza.
In a separate development on Sunday, Israel said it would release 500 Palestinian prisoners on Monday, in accordance with earlier agreements with the Palestinian Authority.
"This will not be an easy day, nor will it be a happy day," Mr Sharon said at the start of the meeting, adding that evacuating settlements was necessary for Israel's future.
Israel will pull out all its 8,000 settlers from 21 fortified enclaves in Gaza
Israel will maintain control of Gaza's borders, coastline and airspace
Four isolated West Bank settlements also to be evacuated
Within hours of the vote, Mr Sharon signed an order for evacuations to begin on 20 July, giving Gaza's 8,000 settlers and the troops that protect them five months' notice.
Four small West Bank settlements are also to be evacuated. Israel will maintain control of Gaza's borders, coastline and airspace.
The withdrawal should take about eight weeks, Defence Minister Shaul Mofaz told ministers.
It will be the first time that Israel has abandoned settlements in Palestinian territories.
Many settlers have vowed to resist the move, but others have already decided to accept the government's compensation offer and move out.
Mr Sharon won the vote with the support of the centre-left Labour Party which joined his coalition last month. The five No votes came from members of his Likud party, including Finance Minister Binyamin Netanyahu.
Mr Sharon still needs to pass a budget by the end of March or his government will collapse, possibly taking the withdrawal plan down with it.
If the budget is not approved by the deadline, new elections will have to be held.
Mr Sharon has said his government will co-ordinate the disengagement with the Palestinians.
Mr Sharon also won cabinet approval for a new route for the West Bank barrier, after Israel's Supreme Court ruled the previous route was needlessly disruptive to Palestinians' lives.
Ministers voted 20-1, with one abstention.
The new route runs much closer to Israel's boundary with the West Bank than the original one but will still include 6-8% of West Bank territory on the Israeli side.
Israel's decision to ease its travel ban is a relief to Palestinians
It will consolidate the large settlements of Maaleh Adumim and Gush Etzion.
Israel says the barrier is a temporary security measure aimed at preventing suicide bombers but Palestinians condemn it as a land grab.
Palestinian chief negotiator Saeb Erekat said after Sunday's vote that continuing construction of the barrier would "undermine efforts to revive the peace process".
About one-third of the barrier has already been built, mostly in the northern West Bank. Israel occupied the West Bank and Gaza Strip - home to about four million Palestinians - during the 1967 Six Day war.
The cabinet votes came as a border crossing between Gaza and Egypt was re-opened.
Israel had been preventing the vast majority of Palestinians under the age of 35 from crossing the border since last summer.
Mr Sharon and Palestinian leader Mahmoud Abbas agreed to a mutual ceasefire at a summit in Egypt on 8 February.