The first group began boarding buses in the pre-dawn darkness, Monday, at Israel's Etzion Prison, headed for destinations in the West Bank and Gaza Strip. All those Israel decided to free were required to sign statements pledging not to be involved in terrorism.
The Israeli government agreed to the release of the prisoners, earlier this month, as part of a series of goodwill gestures toward new Palestinian President Mahmoud Abbas.
An additional 400 prisoners are to be freed in the coming weeks. The list is to be drawn up by a joint Israeli-Palestinian committee.
Another group of 39 Palestinians, who had been deported to the Gaza Strip and to Europe, have been granted permission to return to the West Bank.
The prisoner release comes a day after the government gave final approval to a plan to dismantle all Jewish settlements in Gaza. Prime Minister Ariel Sharon says the decision to pursue the disengagement was difficult.
"In all my years of service, I have made hundreds, if not thousands of decisions -many in regard to life and death - but the decision about the disengagement plan is the most difficult of all," he said.
The prime minister says he is convinced the decision that was taken was the right one in ensuring the future of Israel as a Jewish, democratic state.
Following the vote, the prime minister immediately signed evacuation orders for all Jewish settlements in Gaza and four small ones in the northern part of the West Bank. The orders give settlers five months to move and also authorizes stiff penalties for any who refuse to leave by the July 20 deadline.
Palestinian President Abbas said, following the vote, that the Palestinian Authority would ensure that the withdrawal take place without any violence from the Palestinians.
He says Palestinians would throw flowers on the departing Israelis - not stones.
The cabinet also approved a revised route for the separation barrier being built in the West Bank that is said to be less inclusive of land claimed by the Palestinians than a previous route. The new route incorporates six percent of West Bank land, compared to the 15 percent that would have been claimed under the original plan. Even so, Palestinians were angered by the move, which they say has usurped Palestinian land and bypassed any negotiations over borders.