Israeli Prime Minister Benjamin Netanyahu ordered the Finance Ministry to resume the regular payment of funds "immediately" to the Palestinian Authority, which relies heavily on them for its monthly budget.
Israel halted the transfers late last year after Palestinian President Mahmoud Abbas won a bid for an upgrade to Palestine's status to non-member state at the United Nations. Since then, the Palestinian Authority has received only part of the funds, which are taxes and customs collected by the Israeli government on Palestine's behalf.
About $100 million (77 million euros) in tax revenues are due to the Palestinian Authority.
The decision showed signs of improving relations between the two states soon after Netanyahu's office made the announcement on Monday.
"The Israeli decision has turned the situation back to what it was before, to how it should be in any case," Palestinian Prime Minister Salam Fayyad told a news conference in the West Bank city of Ramallah.
Palestinians in Gaza and the West Bank suffered a set back in recent months without the influx of the tens of millions it had been accustomed to receiving, much of which went toward paying civil servants and repaying its debt to the private sector.
Prime Minister Netanyahu's decision came several days after President Barack Obama announced that the US would resume its $500 million in annual aid to Gaza and the West Bank. Following the UN's recognition of Palestine, the US Congress had to cut its aid to the West bank by half in protest.
During his four-day tour to the region last week, President Obama encouraged Israel and Palestine to pursue talks aimed at establishing two states and a lasting peace deal. The building of Israeli settlements in the occupied West Bank has largely hindered negotiations in recent months.
kms/rc (AFP, AP, Reuters)