Israel's cabinet has agreed to release 200 Palestinian prisoners, including two jailed 30 years ago for attacks on Israelis.

Nabil Abu Rdainah, an Abbas aide, called the move "a step in the right direction", but added that "thousands, not hundreds" of prisoners should be set free.

Israel has about 11,000 Palestinians in its jails and their release is a highly emotive issue among Palestinians.

Israel and the Palestinians are pursuing a statehood deal by January in US-sponsored talks.

Another Israeli government official said the release would be carried out around August 25, before the Muslim holy month of Ramadan.

"President Mahmoud Abbas had requested the release of very large numbers of prisoners, eventually leading to the release of all Palestinian prisoners from Israeli jails," Abu Rdainah said.

Mark Regev, a spokesman for Ehud Olmert, the Israeli prime minister, called the move a "confidence-building measure" towards Mahmoud Abbas, the Palestinian president.

A release list has not been finalised but would include long-serving inmates, women and children, and two prisoners involved in attacks on Israelis before the 1993 Oslo peace deal, the official said.

'Attempt to divide'

Dogged by a corruption scandal, Olmert has pledged to use his remaining time in office to pursue efforts to reach a peace deal with Abbas. The Israeli prime minister said he will resign once his Kadima party chooses a new leader in September.

Abbas was weakened by last year's takeover of the Gaza Strip by the Hamas movement and his efforts to seal an agreement with Olmert have been hampered by violence and the expansion of Jewish settlements in the occupied West Bank.

Sami Abu Zuhiri, a Hamas spokesman, called for prisoners from his group to be included in the release. He said freeing only those from Abbas's Fatah faction would be "an attempt to strengthen Palestinian internal divisions".

Olmert says he wants to use his time in office to reach a peace deal [AFP]

Palestinian officials said Abbas had requested that the group include Said Atabeh, a member of the Democratic Front for the Liberation of Palestine, jailed in 1977 and the longest-serving Palestinian prisoner in Israel.

Israel released 429 Palestinians as a gesture to Abbas after the resumption of peace negotiations in November at a conference in Annapolis, Maryland.

Months of meetings, closely monitored by Condoleezza Rice, the US Secretary of state, have produced little visible progress on key issues such as control of Jerusalem and the future of millions of Palestinian refugees.