Israel has said it plans to release 250 Palestinian prisoners this week as a goodwill gesture.
Israeli and Palestinian leaders are now holding regular bilateral talks
Israeli Prime Minister Ehud Olmert announced the timing during a meeting with Palestinian Authority President Mahmoud Abbas in Jerusalem.
Israel has been looking to bolster Mr Abbas since the Islamic militant group Hamas defeated his forces and seized control of the Gaza Strip last month.
Mr Abbas has formed an emergency government, based in the West Bank.
The leaders' head-to-head is the latest in a series of meetings designed to build confidence.
Speaking ahead of the discussions, Palestinian officials said Mr Abbas would be pushing for a resumption of talks on creating an independent Palestinian state.
As well as the prisoner release, Israel has recently released $100 million (£50m) in frozen Palestinian tax funds to Mr Abbas's new government and offered amnesty to 180 Fatah militants.
Former Palestinian Prime Minister Ismail Haniya, of Hamas, has criticised the moves as "political bribes" aimed at increasing the divisions between the Palestinian factions.
'None from Hamas'
More than 11,000 Palestinians are currently being held in Israeli jails.
Hamas units took over Gaza by force last month
Mr Olmert's spokesman, Jacob Galanti, said the release of 250 of them would take place on Friday.
He said 85% of the prisoners to be released were members of Mr Abbas's Fatah faction and the remainder were from smaller Palestinian parties. None would be Hamas members, he said.
Mr Galanti said the prisoners had been involved in violence against Israel, but none had "blood on their hands" - direct involvement in deadly attacks.
Mr Olmert and Mr Abbas had also agreed to meet again in two weeks, probably in the West Bank town of Jericho, Mr Galanti added.
Monday's meeting came ahead of a flurry of diplomatic activity.
US President George W Bush is due to speak later on Monday and is expected to reaffirm his support for a two-state solution to the Middle East conflict.
The international group of Middle East mediators known as the Quartet - the US, Russia, the EU and the UN - are meeting later in the week.
At the same time, the Quartet's new envoy, former British Prime Minister Tony Blair, takes up his position.