Israel on Sunday transferred 118 million U.S. dollars in tax revenues to the Palestinian emergency government, local daily Ha'aretz reported on its website.

Earlier, the Israeli cabinet approved the transfer as the first installment of withheld tax funds to be released to the Palestinian National Authority (PNA).

The remainder of the tax funds, collected by Israel on behalf of the Palestinians, will be transferred to PNA within six months.

Israel began withholding the tax funds after the Palestinian Hamas defeated the PNA Chairman Mahmoud Abbas' secular Fatah in the January 2006 parliamentary elections.

Palestinian sources estimate that Israel currently holds about 700 million U.S. dollars in frozen revenues.

The emergency government, sworn in by Abbas, replaced the Hamas- led unity one, which was dissolved by Abbas on June 14 following Hamas' violent takeover of the Gaza Strip.

The tax fund release was the second "goodwill gesture" offered to Abbas and the emergency government in recent days, which was meant to bolster Abbas.

At a summit in Egyptian resort Sharm el-Sheikh late last month, Israeli Prime Minister Ehud Olmert also announced that Israel would release 250 Fatah prisoners.

Source: Xinhua