Israel said Friday it had paid $100 million in frozen tax funds to the Palestinians and rescinded a contentious decision for a new West Bank settlement, strengthening the hand of moderate President Mahmoud Abbas ahead of crucial weekend talks in Damascus with his Hamas rivals.

Prime Minister Ehud Olmert's office said the payment, the first such transfer since the militant Islamic Hamas won control of the Palestinian government in March 2006, was made Thursday night.

Defense Minister Amir Peretz, meanwhile, ordered plans for the Maskiot settlement frozen indefinitely "in order to look carefully at the implications," ministry officials said, speaking on condition of anonymity because of the issue's sensitivity.

Israel drew international condemnation with its announcement last month that it had approved the construction of Maskiot to house those settlers removed from the Gaza Strip in Israel's 2005 pullout. It was the first new West Bank settlement officially approved since the early 1990s, when Israel promised to halt such construction as part of interim peace accords.

Israel has been trying to boost Abbas in his struggle with Hamas, which rejects the existence of a Jewish state in an Islamic Middle East. However, such efforts can backfire, as Palestinians of all stripes try to distance themselves from the Israelis.

In a development expected to further fan Arab anger, the 10-year-old daughter of a Palestinian peace activist, critically wounded by Israeli security forces during a demonstration earlier in the week, died of her injuries in a Jerusalem hospital Friday.

Abir Aramin's father, Bassam Aramin, was among the founders of Combatants for Peace, a group of former Israeli and Palestinian fighters who work for a peaceful resolution to the Israeli-Palestinian conflict. He said his daughter's death did not alter his commitment to work for peace.

"I'm going to continue in this role and not give up," he said.

Abbas is to travel to Syria on Saturday for talks with Hamas chief Khaled Mashaal, aiming at forging a coalition government and ending a punishing international aid boycott. Talks have sputtered for months amid clashes between each side's loyalists, which have killed 35 people, but the fact that the two leaders were meeting hinted that an agreement might be finally at hand.

Abbas said Friday if the latest round of talks fails, he will call early elections, but acknowledged that Hamas could emerge the victor once again.

"We say either there is a (unity) government or elections," he said after a meeting with European Union foreign policy chief Javier Solana in the West Bank town of Ramallah. "Elections don't mean we want to throw Hamas into the sea. It has been elected and can be elected again."

The financial transfer to Abbas was part of tax money Israel collects for the Palestinian Authority by mutual agreement. Israel halted payments when Hamas won parliamentary elections and set up its Cabinet.

Abbas aide Saeb Erekat welcomed the payment, but said it still only represented about 25 percent of Palestinian revenues Israel is holding.

"We need it badly, and we consider this a step in the right direction, hoping that the whole lot of money withheld will be transferred to the Palestinian Authority," he said.

Israel, the United States and the EU define Hamas as a terrorist group because of its suicide bombings against Israelis in the past decade, which have killed hundreds. Since the group took office, the international community has frozen foreign aid that kept the Palestinian Authority afloat since it was created in 1994.

An official in Olmert's office said the funds transferred Thursday were paid directly to Abbas for use in humanitarian efforts and to boost his security force. The official, speaking on condition of anonymity because the decision had not yet been announced, said Israel was satisfied by assurances that the money would not go to the Hamas-controlled Finance Ministry.

The scheduled Abbas-Mashaal meeting would be their first in years. Abbas' Fatah and Hamas are bitter enemies -- their efforts to form a unity government must overcome deep ideological and political divides.

Only the hardships caused by the aid cutoff have pushed them together, forcing them to look for formulas both could live with -- while satisfying Western demands that the Palestinian government recognize Israel, renounce violence and accept previous peace accords. So far, Hamas has refused.

In Gaza, the Popular Resistance Committees, a small local militant group linked to last year's abduction of an Israeli soldier, said it intended to carry out more kidnappings to pressure Israel for the release of what it said were at least 144 bodies of Palestinians killed by the Israeli army and buried around Israel.

"Kidnapping soldiers will be an effective way," said Abu Mujahed, a spokesman for the group, adding that seizing the bodies of dead soldiers to trade for the Palestinian remains was also an option.

The PRC is one of three militant groups that tunneled into Israel and captured Cpl. Gilad Shalit in a June 25 raid near the Gaza Strip. Shalit has not been seen since then, but he is believed to be alive, and Egypt has been trying to broker his release in exchange for Palestinians held in Israeli prisons.

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