Nearly US$120 million in frozen tax revenues were transferred in the first instalment -- one sixth of the total that the Palestinians say Israel has been withholding and more than enough to cover one full month's wages to Palestinian Authority workers and pensioners.

Israel will also transfer newly collected tax revenues, expected to total another US$50 million, later this week, according to a senior Israeli official.

Israeli Prime Minister Ehud Olmert said steps taken by Abbas to try to rein in militants since Hamas's violent takeover of the Gaza Strip last month could also lead to progress on the diplomatic front, but he offered no specifics.

Israel started withholding the tax revenues, which it collects on behalf of the Palestinian Authority, on February 1, 2006 after the Islamist militant group Hamas trounced Abbas's secular Fatah faction in parliamentary elections in January.

The funds are the main source of funding for the cash-strapped Palestinian Authority.