The prisoner issue is a highly emotional one on both sides. The climate for peace talks could improve if increasing numbers of prisoners are allowed to go home and if the level of violence remains low.

After an initial debate today on releasing prisoners, the cabinet voted 10 to 10 with 2 abstentions. At that point, some ministers proposed a monitoring committee to review the releases and determine whether the Palestinians were working to halt violence. The ministers then passed the measure, 13 to 9, according to an official who briefed reporters.

While Prime Minister Ariel Sharon's ministers were thrashing out the issue in Jerusalem, Israelis and Palestinians were protesting in the streets on a scorching summer day.

Outside the prime minister's office, Israelis who had lost family members in terror attacks held up posters of those killed and demanded that Mr. Sharon's government keep closed the jail cells of Palestinians convicted of violence. Aware of the sensitivities, Mr. Sharon told his cabinet, "There is no way prisoners with blood on their hands will be released," according to an official at the meeting.

In Gaza City, Palestinians marched and held signs with pictures of some of the roughly 5,500 prisoners seized by Israel since the current uprising began in September 2000. The Palestinians insist that all must be released, and some Palestinian officials and factions say that failure to free them could threaten a week-old truce.

Elsewhere in Gaza City, Palestinian government workers began whitewashing graffiti that praised Palestinian militants. The elaborate, brightly colored paintings cover many of the city's walls, and Mr. Sharon's government has demanded that the Palestinian Authority act to halt incitement against Israel.

In another development, Shaul Mofaz, Israel's hawkish defense minister, said that talks with Muhammad Dahlan, the Palestinian security chief, had been "very positive" and that the number of Palestinian attacks had fallen.

The Palestinians are demanding more Israeli troop withdrawals from West Bank towns after the pullout last week from Bethlehem and much of the Gaza Strip.

"We are ready to continue to hand over other cities," Mr. Mofaz said. "It will be done gradually."

The Palestinian prime minister, Mahmoud Abbas, has made the release of prisoners a priority, and it is one of the quickest and most tangible ways he can demonstrate to Palestinians that he is winning concessions in talks with Israel. Mr. Abbas has met with Mr. Sharon four times in recent weeks; another session is expected this week.

"We have an interest in seeing that the new Palestinian government is strong," Avraham Poraz, Israel's interior minister, said after the cabinet meeting. "Those being released now are not murderers. We have to look to the future, and if we want less killing and less terrorism, we will have to be flexible on this issue."

Palestinians, though, are demanding freedom for all Palestinian prisoners. Mr. Sharon's government appears willing to release them by the hundreds if relative calm prevails — but not by the thousands.

"The Israeli government should not make these decisions unilaterally," said Qadoura Fares, a Palestinian legislator and president of the Palestinian Prisoners' Club, which assists inmates. "What we are demanding is a joint Palestinian-Israeli committee that negotiates the criteria and approves the names of those to be released."

At the cabinet meeting today, Israel's security chief, Avi Dichter, was questioned about the list he had drawn up of potential candidates for release.

The government did not give precise figures, but Mr. Poraz said he expected the releases to total about 300 over the next two weeks. The Israeli news media said the number could reach 350. 

Israel has freed about 300 prisoners in the past few weeks.

Israel has placed many conditions on releases. Most of those to be freed are being held under "administrative detention," which allows suspects to be held for renewable six-month stretches without charges being filed.

Prisoners younger than 18, older than 60 and women will be given priority for release. On the other hand, prisoners who are members of Hamas and Islamic Jihad, militant groups that oppose negotiations with Israel, will not be freed.

Hamas, Islamic Jihad and the mainstream Fatah movement have agreed to a truce that was declared a week ago, and a smaller Palestinian group, the Popular Resistance Committees, signed on today.

The Popular Resistance Committees claimed responsibility for firing rockets at a Jewish settlement in the Gaza Strip on Wednesday. Since then, the Palestinian security forces have arrested nine members of the group. In response to the truce declaration, two men were released today and the other seven were expected to be freed soon, a spokesman for the group said.

Mr. Abbas has been extremely reluctant to send Palestinian security forces to confront militants. But he says he will not tolerate truce violations.

Israel is insisting that he go much further and arrest and disarm the factions that have carried out attacks, even if the groups have temporarily suspended them.

Several mostly small-scale clashes have taken place in the West Bank and Gaza in the past week.

No Israeli has been killed since the truce was declared on June 29, though Palestinians shot and killed a Bulgarian worker who was apparently mistaken for an Israeli on a road in the West Bank.

Three armed Palestinians have been killed in the past week, including one who apparently blew himself up in Gaza and two who were shot in confrontations with Israeli security forces in the West Bank.

The 5,500 Palestinian prisoners detained during the current Palestinian uprising include about 2,000 convicted and sentenced by Israeli courts. Almost 2,700 are at some stage of the judicial process, while 800 are being held without charges, according to Btselem, an Israeli human rights group.

Both sides face many demands under the Mideast peace plan, known as the road map. It was formally begun a month ago and seeks to create a full-fledged Palestinian state and a comprehensive peace agreement within three years.