The Israeli government on Sunday said it was releasing some $50 million in frozen tax funds to the government of Palestinian President Mahmoud Abbas, following through on a pledge to bolster the moderate Palestinian leader in his battle against the Islamic militant group Hamas.

Israel, along with the international community, has been trying to rally behind Abbas since Hamas routed his Fatah movement and violently took control of the Gaza Strip last month. The infighting has left the Palestinians with two rival governments — the isolated Hamas regime in Gaza and Abbas' emergency Cabinet in the West Bank.

Sunday's announcement was Israel's first concrete move in support of Abbas. Prime Minister Ehud Olmert also has promised to free 250 Palestinian prisoners as a goodwill gesture to Abbas, though the move is on hold while security officials decide on the names, an Israeli official said.

The official, speaking on condition of anonymity because he was not authorized to talk to the media, said the Cabinet would discuss the matter next Sunday.

Click here for FOXNews.com's Mideast center.

The money being transferred comes from the roughly $660 million in Palestinian taxes that Israel has withheld since Hamas won Palestinian elections in January 2006.

Israel froze the money — mostly customs duties that it collects on behalf of the Palestinians — saying that Hamas could use the funds to carry out attacks. Israel considers Hamas, which is sworn to Israel's destruction and has killed hundreds of Israelis in suicide bombings, a terrorist group.

The tax funds account for roughly half of the Palestinian government's operating budget. Without the money, the government has been unable to pay regular salaries to its 165,000 workers. Since the government is the largest employer in the Palestinian territories, the sanctions have crippled the Palestinian economy.

After Abbas expelled Hamas from the Palestinian government last month, Olmert announced that he would soon resume financial transfers to Abbas.

Olmert's spokeswoman, Miri Eisin, said at least $50 million would be sent to Abbas' government initially. She declined to say when or if the rest of the Palestinian money would be released.

Jacob Galanti, another official in Olmert's office, said the transfers would begin later Sunday.

In the West Bank town of Ramallah, officials in the office of Abbas' prime minister, Salam Fayyad, said they expected to receive the money by Monday. They said the money was essential because Fayyad, who also is the finance minister, has pledged to pay workers' salaries this week.

Speaking to his Cabinet, Olmert said the warming ties with Fayyad creates "paths for cooperation." But at the same time, he said the Israeli army would push forward with its latest crackdown on Palestinian militants.

Olmert spoke a day after a series of Israeli airstrikes killed seven Palestinian militants in the Gaza Strip. Israel also has been targeting militants in the West Bank, including members of Abbas' Fatah movement.

Abbas, a moderate who favors peace talks with Israel, has been trying to consolidate his control of the West Bank since losing control of Gaza. Abbas last week ordered all armed groups, including Fatah gunmen, to disarm as part of his efforts to restore law and order.

Olmert told his Cabinet on Sunday that the behavior of the new Palestinian government was encouraging.

"Some of the actions already taken by the Palestinian government ... will help us to find, slowly and cautiously, paths of cooperation between us and them which without doubt will enable us to advance on the diplomatic track," he said in a statement to reporters.

"At the same time, the war on terror continues and will not cease," he said. "Let nobody have any doubt, this activity will continue in a concentrated way." He noted the latest attacks in Gaza as well as last week's arrest raids against Fatah militants in the West Bank city of Nablus.

Also Sunday, Israeli Finance Minister Avraham Hirchson resigned Sunday as police investigate allegations of embezzlement at a workers' union he headed in 2003.

The resignation was a blow to Olmert, who considers Hirchson of his Kadima Party a key ally. Hirschson suspended himself in April to battle the accusations. Olmert has been serving as acting finance minister.

Olmert is expected to name confidant Ronnie Bar-On, also of Kadima, to replace Hirchson in the coming days, Israeli media reported Sunday. Bar-On is currently interior minister.

Click here for FOXNews.com's Mideast center.