Earlier this month, Israel had blocked the routine handover of customs and other levies after PA president struck unity deal with Hamas.
Bowing to international pressure, Finance Minister Yuval Steinitz confirmed a statement issued by a Palestinian official on Sunday that he would renew the transfer of millions of dollars in suspended tax transfers to the Palestinian Authority.
"For the last two weeks, we gave the PA a yellow card," the finance minister said Sunday night, "but we decided to renew the revenue transfers after we got confirmation from the Palestinians that no money will be transferred to Hamas or to terrorist operations."
Steinitz added that "Israel reserves the right to stop the transfer of revenues once again if in the next few months Hamas will become part of the Palestinian government."
Earlier this month Israel had blocked the routine handover of about 300 million shekels ($88 million) in customs and other levies it collects on behalf of the Palestinians after Western-backed President Mahmoud Abbas struck a unity deal with Hamas, his Islamist rivals.
Finance Minister Yuval Steinitz said at the time he would only allow the transfer after receiving guarantees the money would not reach Hamas, an Islamist militant group who runs the Gaza Strip and whose charter calls for Israel's destruction.
Before Steinitz issued his statement, an official in Palestinian Prime Minister Salam Fayyad's office said they had been informed by U.S. Secretary of State Hillary Clinton and Middle East envoy Tony Blair that Prime Minister Benjamin Netanyahu had approved the transfer.
An aide to Steinitz, who as finance minister oversees the funds, said he had "received some clarifications" in recent days, but that the money had not been transferred.
Fayyad had sought international intervention to prevent the Israeli measure. The PA is also heavily dependent on aid from donors including the United States, which has said its future assistance will depend on the shape of a new Palestinian government, expected to be formed under the unity agreement.
Netanyahu said the Palestinian unity deal was a blow to peace efforts.
The tax transfers provide the PA, which exercises limited self-rule in the West Bank, with $1 billion to $1.4 billion annually. Palestinian officials said they would not be able to meet their commitments, including paying salaries, without the funds.