Hamas leader Ismail Haniya has attacked
Mr Haniya, sacked as Palestinian PM after Hamas took control of
He also rejected a summit beginning in
Devastating impact
Mr Abbas's new emergency government does not include Hamas.
The money was originally withheld by
Israeli Prime Minister Ehud Olmert said the funds would "gradually help the new Palestinian government, one that is not a Hamas government".
He said: "We will discuss with the Palestinian president tomorrow, and with the Palestinian government in the summit's aftermath, how we release the funds."
An Israeli official said the money would be released once a mechanism was established to ensure that it does not reach Hamas.
The embargo had a devastating impact on the Palestinian economy and meant that many of the Palestinian Authority's 160,000 employees have not received their full pay in more than a year.
"This money should not be used for blackmail but should be paid to all Palestinians," Mr Haniya said in his first speech since Hamas'
'Steadfastness'
The promised release of the funds - thought to be hundreds of millions of dollars - came a day ahead of a Mid-East summit in
But Mr Haniya said any hopes generated by the prospect of the talks was a "mirage" and "illusions".
He said: "The Americans won't give anything.
The summit will be held in the
"These talks do not include final status issues, but rather, how the prime minister and the president of the Palestinian Authority would envision a future Palestinian state," Israeli government official David Baker said.
PHOTO CAPTION
Hamas leader Ismail Haniya