Israel has approved the release of frozen tax funds to the emergency government of Palestinian Authority President Mahmoud Abbas.
Prime Minister Ehud Olmert asked the cabinet to approve the vote
The move will help reinforce Mr Abbas's position against Hamas, which has taken control of the Gaza Strip.
An Israeli official said the tax revenues would be handed over in stages to prevent the money reaching Hamas.
The money was originally withheld by Israel after the Islamist group came to power in the January 2006 election.
The cabinet's vote came ahead of a summit that Israeli Prime Minister Ehud Olmert is due to attend with Mr Abbas and Egyptian and Jordanian leaders.
But the summit will not see Israel entering into negotiations on a final peace deal with the Palestinians, a government official said.
"These talks do not include final status issues, but rather, how the prime minister and the president of the Palestinian Authority would envision a future Palestinian state," David Baker said.
Mr Olmert said the funds would "gradually help the new Palestinian government, one that is not a Hamas government".
"We will discuss with the Palestinian president tomorrow, and with the Palestinian government in the summit's aftermath, how we release the funds," he said.
An official said the money would be released once a mechanism is established to ensure that it does not reach Hamas.
A BBC correspondent says Israel has spoken about releasing the tax revenues over before, and many Palestinians will be sceptical until the funds are handed over.
An Israeli government official said the cabinet approved the transfer of around $350m (£125m), the Reuters news agency reported.
But it added this was short of the $700m sought by the Palestinian president.
A senior aide to Mr Abbas, Saeb Erekat, said: "The Israelis should release all our money. These are Palestinian, not Israeli, funds."
Last week, the US, the EU, and Israel said they would lift the economic embargo on the emergency government announced by Mr Abbas.
At the time Israel said it would handover about $800m (£400m) of custom taxes.
Earlier this month Mr Abbas dissolved government and declared a state of emergency, following deadly clashes between his Fatah faction and Hamas in the Gaza Strip.
The fighting left Hamas in control of Gaza, while Fatah says it retains control in the West Bank.