The Israeli foreign minister, Mr Shimon Peres, held talks with the Palestinian finance minister last night, reopening a dialogue that had been put on hold by the recent spate of violence in the Middle East.
Mr Peres' talks with Mr Salam Faiad were approved by Prime Minister Ariel Sharon, who assented to Israel's first contacts with Palestinian Authority officials in four months on condition they did not touch on peace issues.
Meanwhile in Washington, President George W Bush said the Palestinians had made "some progress" toward his demands for institutional changes but gave no sign he would soon urge Israel to withdraw from Palestinian areas.
Israeli forces reoccupied seven West Bank cities after 26 people were killed in Palestinian suicide bombings last month.
Israeli officials said the discussions with Mr Faiad and scheduled talks later this week with newly appointed Palestinian interior minister Mr Abdel-Razak al-Yehiyeh would focus on easing conditions for Palestinians in the West Bank and Gaza Strip.
Both Palestinian ministers, who took office last month, are involved in security and financial reforms demanded by the United States to overhaul a Palestinian Authority it says has been tainted by terrorism and corruption.
Spokesmen for Mr Peres declined to give details of the talks. Israeli Army Radio said they discussed turning over to the Palestinian Authority tax revenues that Israel has collected from Palestinian workers, as was agreed in the 1990s. Israel has frozen the funds during the latest wave of violence.
Mr Peres, an architect of interim peace deals with the Palestinians that have been all but swept away by more than 21 months of conflict, has been largely sidelined by Mr Sharon and no longer heads the Labour Party, a key partner in his coalition.