Israeli cabinet on Sunday decided to officially recognize the newly appointed Palestinian Prime Minister Salam Fayyad and his emergency government, and approved the transfer of the withheld tax revenues to it.

Israeli Prime Minister Ehud Olmert said at the cabinet meeting that the transfer of funds to the Palestinian government is inevitable, adding that Israel would ensure that the money would not be utilized to fund terrorist activities.

Local newspaper Ha'aretz quoted sources at the Prime Minister's Office as saying that a timetable for the transfer has not yet been clinched, nor has a method for the transfer been devised.

The sources added that the release of the frozen tax money would for the time being include only part of the sum Israel has collected on behalf of the Palestinians.

They said "throwing the money all at once would be a wrong move on Israel's part", noting that Israel wants to unfreeze the funds in an orderly and controlled manner.

The sources, however, voiced their belief that first installment will be transferred within several days, inconsideration of the new Palestinian government's declaration of acknowledging the three conditions set by Quartet of Middle East mediators.

The demands include recognition of Israel, renunciation of violence and abiding by previous Israeli-Palestinian agreements.

Miri Eisin, spokeswoman for Israeli prime minister, said that Sunday's vote was a decision in principle to release the funds, and that the exact amount would be discussed at a four-way summit with Palestinian National Authority Mahmoud Abbas on Monday, and then again by the Israeli government.

The handover of the revenues is part of a proposal by Olmert for restoring normal relations with the Palestinian government as well as bolstering Abbas in the wake of the Hamas takeover of the Gaza Strip.

At the weekly cabinet meeting, the decision to transfer the frozen tax funds to the Palestinian emergency government won support from all cabinet ministers except for Minister of Strategic Affairs Avigdor Lieberman and Minister of Tourism Yitzhak Aharonovitch, both from right-wing Yisrael Beiteinu.

Olmert underscored that Abbas is the only figure representing a movement with which Israel can negotiate, and that could potentially bring about progress.

Israel began withholding the tax money, which it collected on behalf of the Palestinian National Authority, after Hamas defeated Abbas' secular Fatah in the January 2006 parliamentary elections.

Palestinian sources estimate that Israel currently holds 700million U.S. dollars in frozen revenues, while Israeli sources put the sum at 562 million U.S. dollars, after the deduction of the debts the Palestinian owed to Israel.

Earlier on Sunday, Olmert met with Defense Minister Ehud Barak and Foreign Minister Tzipi Livni, discussing the message Israel would convey to the Palestinians at the upcoming summit in the Egyptian Red Sea resort of Sharm al-Sheikh.

Olmert, Abbas, King Abdullah II of Jordan and Egyptian President Hosni Mubarak will attend the summit.