The Israeli cabinet approved the transfer of $100 million US to the Palestinian Authority on Sunday, on the condition that the money bypass the Hamas-led government.

The decision to release the Palestinian tax revenues followed Saturday night's talks between Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas, whose long-dominant Fatah party lost the January election to Hamas.

The two-hour meeting in Jerusalem was the first formal session between the two leaders in 22 months. Olmert's office said more meetings were planned.

Money to be paid to Abbas's office 

The tax revenues are normally collected by Israel on behalf of the Palestinian Authority. But for the past nine months, since Hamas took office, Israel has refused to transfer any of the money.

Canada, the United States and the European Union have frozen millions of dollars in aid to the Hamas-led government over its refusal to recognize Israel and renounce violence.

To avoid Hamas from gaining access to the $100 million in tax revenues, the sum will be paid directly to Abbas's office. But there has been no decision made on when the money will be released.

In addition, Israel will transfer about $7.25 million US to Palestinian-run hospitals in Jerusalem, said Palestinian negotiator Saeb Erekat, who participated in the talks.

Olmert also agreed to remove several checkpoints in the West Bank and ease security procedures for the transfer of goods to and from the Gaza Strip.

The two leaders failed to agree on a key issue — a prisoner swap — but decided to set up a committee to study it further.

While Palestinians are hoping that some prisoners could be released as a good will gesture before a Muslim holiday on Dec. 29, Israel is reluctant to release any prisoners until Hamas frees Israeli soldier Gilad Shalit. Hamas-allied militants captured him in a cross-border raid in June.