The government of Israel has approved the release of 450 Palestinian detainees in a move announced just before talks with Palestinian leaders.
Palestinians said Mr Olmert's settlement freeze pledge was "nonsense"
A senior Israeli official said it was a goodwill gesture ahead of a Middle East peace conference in the US next week.
Israeli premier Ehud Olmert reiterated a pledge to freeze new settlements in the occupied West Bank and dismantle unauthorised "wildcat" settlements.
His office added he would meet Egypt's President Hosni Mubarak on Tuesday.
Mr Olmert's talks with Palestinian Authority President Mahmoud Abbas are the latest in a series leading up to the expected conference in Annapolis, Maryland.
Speaking to reporters in Ramallah, Mr Abbas said that "we want to reach satisfactory progress so that we can go to Annapolis with a solid base".
Mr Abbas had been asking for at least 2,000 Palestinians to be freed from Israeli prisons.
Correspondents said the statement on new settlements stopped short of US and Palestinian demands to freeze construction in existing settlements.
Israel has about 11,000 detainees from the occupied territories
"We committed ourselves... not to build new settlements," Mr Olmert was quoted by his spokeswoman as saying.
"There will be no new settlements and no land confiscations."
Settlements in the land occupied by Israel in the 1967 war are deemed illegal under international law, although Israel disputes this.
A senior Palestinian negotiator quoted by Reuters called Mr Olmert's comments "nonsense" without a pledge on expanding existing settlements, currently housing more than 400,000 Israelis in the occupied West Bank and east Jerusalem.
Israel holds about 11,000 Palestinians in detention for a variety of security reasons, including many without trial or charge.
An Israeli official said the justice ministry had drawn up a list of about 450 prisoners who fitted the criteria for release set by Mr Olmert.
Existing criteria exclude members of the militant Hamas movement, which controls the Gaza Strip and is branded a terrorist group by Israel, and people responsible for deadly attacks against Israelis.
The Bush administration called the Annapolis meeting hoping to kick-start Israeli-Palestinian peace negotiations after seven years without substantive talks.
However, correspondents say expectations of the conference have sunk amid continuing disputes over a joint document addressing the negotiating terms on the major issues.
These are the future of Jerusalem, the future borders of Israel and the Palestinian state. and the fate of millions of Palestinian refugees from what is now Israel.
Foreign ministers from the Arab League, many of whose members have no diplomatic ties with Israel, will decide on Friday whether to attend the meeting due to take place in Annapolis, Maryland.
The US has not yet announced the date of the conference or the list of participants, although it is expected to happen before the end of November.