The Israeli Cabinet gave the go-ahead on Thursday for the first withdrawal of troops from the West Bank in two years.
The cabinet has narrowly approved the first stage of troop withdrawal called for by the Wye peace accord signed last month.
The approval comes after ministers agreed the Palestinians had met their obligations under the land-for-security accord.
Prime Minister Benjamin Netanyahu finally convinced his cabinet colleagues to hand over more land to the Palestinians, but in the end it was a close call.
"The cabinet has taken a decision to implement Israel's obligation under the Wye agreement. This means that Israel will withdraw from two per cent of the West Bank. It will sign a protocol on the opening of first international airport of the Palestinian authority in the Gaza district, and it will release 250 prisoners."
SUPERCAPTION: David Bar-Illan, Senior Adviser to Prime Minister Netanyahu
Soon after the decision, Israeli soldiers in the West Bank started unloading concrete slabs that will form roadblocks at the new border.
Israeli commanders met with their Palestinian counterparts to hand over maps of the occupied territories and complete preparations for the troop withdrawal from the West Bank.
There were celebrations in the West Bank as Palestinian soldiers paraded through the streets.
The pull back is already five days behind schedule after a series of delays and disputes.
Palestinian chairman Yasser Arafat has vowed to do all possible to move the peace process forward, but some Palestinians fear further setbacks.
"I hope that there will be no other hesitations, no other reluctance and no other delays."
SUPER CAPTION: Ahmed Tibi, senior adviser to Yasser Arafat
Many settlers are now worried for their safety, despite Palestinian assurances of a crackdown on militants
"There are some people who are afraid and want to leave - it causes a lot of stress and fear. There are others who don't want to leave - I don't want to leave at all."
SUPER CAPTION: Sara Shienmen, Israeli settler
The first phase of the troop pullback begins on Friday - but with the Israelis already planning further settlements in disputed areas of the West Bank the atmosphere remains volatile.