The Israeli government will release tens of millions of tax dollars to the Palestinian Authority, after freezing the funds recently as punishment to the Palestinians.
Wednesday's decision to release the money -- about $100 million due for November -- came after heavy pressure from the United States, United Nations and European officials.
The Jewish State collects the tax funds for the Palestinians and transfers the money each month as part of their partial peace agreements from the 1990s.
The money, collected from customs duties and other fees, is used by the Palestinian government to pay thousands of workers as well as security forces.
Israel froze the money earlier this month to punish the Palestinians for trying to gain U.N. recognition of their independence and bypass peace talks.
Palestinians said the move damaged their fragile economy.
Israeli Prime Minister Benjamin Netanyahu's office said he decided to release the money because the Palestinians appear to have suspended their "unilateral moves."
Officials added that the decision would be "reassessed" if the Palestinians resume those steps.
Mideast envoy Tony Blair welcomed Israel's decision and said the payments should be "transferred on a regular and predictable basis."
"This is Palestinian money which is critical to sustaining ," he said. "Withholding these funds only benefits those who oppose peace and Israeli-Palestinian cooperation."
Israeli-Palestinian peace talks have been stalled for three years.