Israel is to give the Palestinians a final monthly payment of tax and customs revenues, frozen last week over Islamic militants Hamas' poll victory.
Hamas says it will not abandon its principles
Israel suspended the funds because it regards Hamas as a terrorist group committed to the destruction of Israel.
But a minister said the cabinet decided to make the $45m (£26m) payment because Hamas was not yet in government.
The news came as an inquiry revealed Palestinian officials had stolen or wasted hundreds of millions of dollars.
The figure came to light during a report on the progress of a major investigation being conducted by the Palestinian Attorney General, Ahmed al-Moghani.
Mr Moghani said 20 arrests had been made so far, but no names would be given until the investigation was complete.
The BBC's Alan Johnston in Gaza says the allegations were a factor in the ruling Fatah party's crushing defeat by the Hamas in the 25 January.
'Not a shekel'
Israeli Housing Minister Zeev Boim said Israel's payments to the Palestinians were to be halted again once Hamas formed a government.
"Not even a single shekel will be transferred while Hamas is in power," he said on Israeli radio, after attending a cabinet meeting to discuss the issue.
Acting PM Ehud Olmert says he will not give cash to a Hamas government
The payment that is to go ahead had been due on 1 February.
The money is the main source of funding for the Palestinian Authority and is used to pay 140,000 workers, including teachers, health care workers and police officers.
The BBC's Nick Thorpe in Jerusalem says money is one of the few levers available to the Israelis and their US allies in trying to pressure Hamas for a permanent abandonment of its armed struggle.
Hamas officials from Gaza are expected to have talks with the group's leadership-in-exile in Cairo on Monday to discuss the shape of the new government.
On Saturday, the Gaza leaders met the Palestinian leader Mahmoud Abbas, and agreed that the new parliament should be convened within two weeks.
The US and EU have also said they will stop aid to the Palestinians unless Hamas renounces violence. The militant group says it will not be coerced into abandoning its principles.
Palestinians are hoping to make up for lost funds with cash injections from Saudi Arabia and other Arab countries.