Mahmoud Abbas

The decision to unfreeze the money came a day before Prime Minister Ehud Olmert heads to Egypt for a high-profile summit with Abbas, President Hosni Mubarak of Egypt and Jordanian King Abdullah II.

The gathering is meant to give Abbas a display of support against his Hamas rivals, who violently seized control of the Gaza Strip in a bloody rout of Abbas' Fatah movement earlier this month.

But Olmert sought to play down expectations ahead of the summit. "We have an interest in having this meeting, but I don't want anyone to think we're on the brink of a dramatic breakthrough," Olmert told his Cabinet, according to a meeting participant.

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The Palestinian infighting has left the Palestinians with two governments — Abbas' new Cabinet in the West Bank, and the Hamas rulers in Gaza. Israel and moderate Arab leaders have joined together in support of Abbas, a moderate who favors peace with Israel, while trying to isolate Hamas, a radical group pledged to Israel's destruction.

Olmert aide David Baker said in the current environment, it is premature to begin talks on a final peace deal, despite calls from the Palestinians and other Arab countries to do so.

Israel is prepared to discuss "a political horizon," he said. "These talks do not include final status issues, but rather how the prime minister and the president of the Palestinian Authority would envision a future Palestinian state."

Deposed Palestinian Prime Minister Ismail of Hamas, speaking in Gaza, called hopes for the summit "illusions" and a "mirage." He said, "the Americans won't give anything. Israel won't give us anything. Our land, our nation will not come back to us except with steadfastness and resistance," a code word for attacks against Israel.

The main proposal at Sunday's Cabinet meeting was the release of some $550 million (euro409 million) of Palestinian tax money that Israel has withheld since January 2006, when Hamas — which Israel considers a terrorist group — swept Palestinian parliamentary elections. Abbas kicked Hamas out of the Palestinian government after the group took Gaza, clearing the way for a transfer of the money.

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Olmert's spokeswoman, Miri Eisin, said Sunday's vote was a "decision in principle" to release the funds, and that the "exact amount" would be discussed at Monday's summit and then again by the Israeli government.

A Cabinet meeting participant said he expected a "mechanism" for transferring the money to be in place within days. However, he said the money would not begin flowing until Abbas' new government formally accepts international calls to renounce violence and recognize Israel. He said the step is expected to be a formality.

The official said the money would be released gradually to ensure it doesn't reach Hamas. The official was not allowed to be identified under Israeli civil servant rules.

Participants in the Cabinet meeting said the proposal passed by an overwhelming majority; only two-hard-line ministers voted against it.

Israel said it withheld the money — mostly customs duties that Israel collects on behalf of the Palestinians — to prevent Hamas from using it to finance terror attacks. Without the funds, the Palestinian government has been unable to pay salaries.

Mohammed Dahlan, a former top Fatah official in Gaza, indicated that Israel should turn over the money immediately. "This is not a gift," he said. "This is the Palestinian people's money, which was stolen by the Israelis."

In Gaza, Hamas spokesman Sami Abu Zuhri called on Abbas' new prime minister, Salam Fayyad, to spend the money on Palestinians in Gaza as well as the West Bank. "This is the money of the Palestinian people and everyone has the right to this money," he said.

The release of tax money is among a package of goodwill gestures that Israel is considering to strengthen Abbas.

Olmert met with top security officials Sunday to discuss removing some of the hundreds of roadblocks Israel has erected in the West Bank. Israel says the travel restrictions are necessary security measures. Palestinians say they are excessive and crushing their economy.

Although no decisions were made, Olmert told his Cabinet that removing the roadblocks would be a necessary risk.

"There are not a few dangers when you decide to do these things ... but when you go into such a process, you have to take some risks. We are strong enough to take calculated risks," he was quoted as saying.

In return, Israel will demand in Egypt that Abbas confront militants — something he had been reluctant to do before Hamas' Gaza victory.

"We shall present there our expectations from the opposite side, our demands on the issues of security and the war against terror, but definitely also our readiness to cooperate with the new government," Olmert said in televised comments before the Cabinet meeting.

Since losing control of Gaza, Abbas has acted with uncharacteristic determination: He expelled Hamas from its coalition government with his Fatah movement, set up an emergency Cabinet, and embarked on a widening crackdown on the Islamic group that has included arrests of hundreds of gunmen in the West Bank and a plan to dry up its funding.

The Hamas takeover of Gaza complicates another important issue for Israel — that of Gilad Shalit, a soldier held captive by Hamas-linked militants in the coastal territory for a year.

On Sunday, hundreds of protesters gathered outside Israel's Parliament to mark the one-year anniversary of Shalit's capture, and remember two other soldiers captured by Lebanese Hezbollah guerrillas last July.

The soldiers' conditions aren't known, and secretive negotiations for their return have yielded no results.

Noam Shalit, the soldier's father, criticized the government for failing to win his son's release.

"If an entire country, its leaders...the sophisticated systems it has, satellites, drones, can't bring back a soldier from captivity after an entire year, and can't even get firm information about his condition and health, then we should all be worried," Shalit said in a speech at the rally.