Israel is releasing hundreds of millions of dollars in tax revenues it has been withholding from the Palestinians as punishment for their joining the International Criminal Court.
Prime Minister Benjamin Netanyahu issued a statement Friday saying "given the deteriorating situation in the Middle East, one must act responsibly and with the consideration alongside a determined struggle against extremist elements."
His office also cited humanitarian concerns.
U.S. State Department spokesman Jeff Rathke called it an important step that will help stabilize the situation in the Middle East. He said the U.S. hopes both sides will build on the step to move forward and lower tensions.
Israel has been refusing to transfer the funds since January when the Palestinian Authority announced plans to join the international court, where it could bring war crimes charges against Israel.
The war between Israel and Hamas militants last year killed more than 2,200 Palestinians, mostly civilians. Israel denies the war crimes allegations.
Israel collects taxes on goods that enter its ports destined for the Palestinian Territories and transfers the funds to Palestinian officials.
The Palestinian Authority has complained that the Israel withholding has pushed it close to financial collapse.