The measures were announced a day after Palestinian President Mahmoud Abbas met Defence Minister Benny Gantz in a rare visit to Tel Aviv.
Israel's defence minister has approved a raft of measures aimed at improving relations with Palestine following a rare meeting with Palestinian President Mahmoud Abbas in Israel.
Wednesday's announcement comes a day after Defence Minister Benny Gantz met with Abbas at his private residence in a Tel Aviv suburb.
It was the first time Abbas met an Israeli official inside Israel since 2010.
The two discussed security coordination between Israel and Abbas' Palestinian Authority, which administers pockets of the occupied West Bank.
Gantz's office said he approved “confidence-building measures” including the transfer of tax payments to the Palestinian Authority, the authorisation of hundreds of permits for Palestinian merchants and VIPs, and approving residency status for thousands of Palestinians in the occupied West Bank and Gaza Strip.
Israel collects hundreds of millions of dollars worth of taxes on behalf of the PA as part of the interim peace agreements signed in the 1990s.
The tax transfers are a key source of funding for the cash-strapped Palestinians, but Israel has withheld funds over the PA's payment of stipends to thousands of families that have had relatives killed, wounded or imprisoned in the conflict.
Israel says the payments incentivize terrorism, while the Palestinians say they provide crucial support to needy families.
Israel approved residency for some 9,500 Palestinians.
Israel controls the Palestinian population registry, and over the years its policies have left an estimated tens of thousands of Palestinians without legal status, severely limiting their freedom of movement, even within the occupied territories.
Israel granted legal status to some 4,000 Palestinians in October.
Criticism over meeting
Gantz’s meeting with Abbas — the second in the six months since Bennett's coalition government took office — drew vocal criticism from Israeli opposition lawmakers, including former prime minister Benjamin Netanyahu’s Likud party, the largest in parliament.
Palestinian factions also condemned Tuesday’s meeting.
In a statement on Wednesday, Hamas group said the Abbas-Gantz meeting was held on the 13th anniversary of the 2008 Israeli war on the Gaza Strip.
No interest in reviving talks
Israeli Prime Minister Naftali Bennett is opposed to Palestinian statehood.
His government has shown no interest in reviving peace talks, which broke down more than a decade ago, but has said it wants to reduce tensions by improving living conditions in the West Bank.
Recent months have seen a surge in violence by Israeli settlers against Palestinians in the West Bank and Palestinian attacks on Israelis in east Jerusalem and the West Bank.