An initial payment of 500 million shekels (118 million dollars) was received by the Palestinian finance ministry in the afternoon, shortly after an official said Israel would begin to transfer millions of dollars in tax duties.

"We received 500 million shekels now," a senior Palestinian official in the West Bank political capital of Ramallah told AFP on condition of anonymity.

"Israel affirmed to us that they would transfer tax duties, amounting to 50 to 60 million dollars every month, and that they will also transfer all the money owed from before," the official said.

Releasing the money is a centrepiece of measures proposed by Israeli Prime Minister Ehud Olmert to boost Abbas after Islamist movement Hamas seized control of the Gaza Strip in a bloody armed takeover last month.

In the wake of the crisis, the moderate Abbas dismissed a Hamas-led Palestinian unity government and created an emergency cabinet, backed by the West and based in Ramallah, with whom Israel says business can be done.

The withholding of the tax receipts to governments led by Hamas -- which Israel boycotts as a terrorist organisation -- sparked a financial crisis for the Palestinian Authority, leaving it largely unable to pay its own staff.