Israel has transferred to the Palestinians $100m (77.2m euros, £50.7m) of tax revenues withheld since Hamas won elections last year.
The Palestinian Authority also faces an international aid boycott
The money has been paid directly to the Palestinian President, Mahmoud Abbas, and not the Hamas-led government.
It represents a sixth of the total collected on behalf of the Palestinian Authority since the election.
The money comes from taxes on Palestinians working in Israel and other tariffs.
Analysts say that the money is part of Israel's bid to strengthen moderate Palestinian leader Mahmoud Abbas in his power struggle with Hamas.
Rival Palestinian factions Fatah and Hamas have been locked in conflict following Hamas's election victory which prompted an international aid boycott.
The BBC's Rachel Harvey in Jerusalem says however the money is distributed, it is desperately needed.
The Palestinian government has been crippled in part by the lack of tax revenues but also because of a continuing international financial boycott.
The move comes just days after US Secretary of State Condoleezza Rice held meetings with both the Palestinian and Israeli leaders.
She has said she plans to host a three-way summit with Mr Abbas and Israeli Prime Minister Ehud Olmert early next month.